Indian Economy

National Income, GDP

• Why Record FDI Inflow is Not a Cause for Celebration?

  Synopsis: The record level of FDI inflows in India for the year 2020-21 does not match the development priorities of the government.

  Background

  • In a recent press release, the Ministry of Commerce and Industry announced that India has attracted the highest ever total FDI inflow (U.S.$81.72 billion) during the financial year 2020-21.
  • This is 10 percent higher than the last financial year 2019-20.
  • Also, given that there was a decline in global FDI inflows in 2020 by 42% compared to 2019, and inflows to developing countries had fallen by 12%, this is a significant development.
  • Effective implementation of FDI policy reforms, investment facilitation, and ease of doing business were credited for the record level of FDI inflows.
  • However, an analysis of FDI inflow data reveals that the reality of FDI in the Indian economy does not help India’s development priorities.

  Why FDI inflows accounted for the year 2020-21 will not benefit India’s development priorities?

  • First, the nature of the bulk of the investments involves just a mere transfer of shares without creating productive assets in the country. This is contrary to the expectation that FDI can contribute to the revival of the economy
  • For instance, take the case of Reliance Group companies, the largest recipients of FDI for the year 2020-21. It accounted for 54.1% of the total equity inflows during the three quarters.
  • In this case, FDI inflows were meant to facilitate Reliance Industries to withdraw its investments already made in the form of Optionally Convertible Preference Share.
  • This, therefore, amounted to the indirect acquisition of shares held by Reliance Industries.

  Optionally Convertible preference shares: This class of shares can be converted into equity shares either at the option of the holder or at the option of the company. The convertible portion can be in full or in part

  1. Second, according to RBI, though FDI inflows were stronger in 2020-21, their distribution was highly skewed.
     • For instance, the manufacturing sector received just 17.4% of the total inflows during 2020-21.
     • Whereas, the services sector attracted nearly 80% of the total inflows, with information technology-enabled services (ITeS) being the largest component.
     • Further, according to the RBI, non-acquisition-related inflows into the manufacturing sector were the lowest in 2020-21.
  2. Third, the bulk of the investments in Reliance Group companies will not facilitate sharing of managerial experience and technical expertise. Because investors’ share is pegged at 9.9%. For instance, Facebook’s shareholding in Jio Platform was pegged at 9.9%.
     • According to the International Monetary Fund and also the RBI, a foreign investor, holding 10% or more of voting shares in a company, can exercise a significant influence on its management.
  3. Finally, there are other issues related to FDI inflows in India for the year 2020-21. For example,
     • According to RBI data, there was a 47.2% increase in repatriation/disinvestment in the year 2020-21.
     • Further, RBI reports that there was a high increase in portfolio investment (FII) for the year 2020-21. This was the second-highest level of FIIs’ involvement in India.
     • Surely, sustained sizeable repatriation of the long-term FDI, together with a large increase in speculative capital (FII’s) is not good for a country’s Economic Health.

  Source: The Hindu

• World Bank’s “Global Economic Prospects Report” predicts India’s growth as 8.3%

  What is the News?

  The World Bank has released the Global Economic Prospects Report.

  About the Global Economic Prospects Report:

  • Global Economic Prospects is a World Bank Group flagship report. It is issued twice a year, in January and June.
  • Aim: To examine global economic developments and prospects with a special focus on emerging markets and developing economies.

  Key Findings of Global Economic Prospects Report related to India:

  • The World Bank has reduced its growth forecast for India for the 2021-’22 financial year to 8.3% from 10.1% estimated in April.
    • Reason: It has attributed it to the devastating second wave of the coronavirus pandemic that slowed down the economic revival in early 2021.
  • Moreover, the report has said that the economic activity in India would likely follow a similar but less pronounced ‘collapse and recovery’ trend seen during the first wave.

  Key Global Findings of Global Economic Prospects Report:

  • The global economy is expected to expand 5.6% in 2021. This is the fastest post-recession pace in 80 years, largely due to strong rebounds from a few major economies.
  • However, many emerging markets and developing economies continue to struggle due to the following reasons,
    • A resurgence of COVID-19 cases,
    • Lagging vaccination progress
    • The withdrawal of policy support in some instances.
  • Among major economies, the growth of the US is projected to reach 6.8% this year. This is due to large-scale fiscal support and the easing of pandemic restrictions.
  • Among emerging markets and developing economies, China is anticipated to rebound to 8.5% this year, reflecting an increase in demand.

  Source: The Hindu

• World Bank’s “Migration and Development Brief”: India is the top receiver of remittances

  What is the News?

  The World Bank has released a report titled “Migration and Development Brief, 2020”.

  Key Findings of the Migration and Development Brief:

   Findings Related to India:

  • Firstly, India has received the highest amount of remittances in 2020. This was followed by China, Mexico, the Philippines, Egypt, Pakistan, France and Bangladesh.
  • Secondly, India’s Remittances: India has received over USD83 billion in remittances in 2020. This was despite the pandemic that devastated the world economy.
    • In 2019, India had received USD83.3 billion in remittances.
  • Thirdly, India’s remittances fell by just 0.2% in 2020. This was due to a 17% fall in remittances from the United Arab Emirates. However, this was offset by the resilient flows from the United States and other host countries.
  • Fourthly, Remittances outflow from India in 2020 was USD7 billion. In 2019, it was around USD7.5 billion.

  Other Key Findings:

  • China received $59.5 billion in remittances in 2020 against $68.3 billion in 2019.
  • The remittance outflow was maximum from the United States. This is followed by the UAE, Saudi Arabia, Switzerland, Germany and China.
  • Remittance inflows have increased in Latin America, South Asia, Middle East and North Africa.
  • However, remittances have fallen for East Asia and the Pacific, Europe, Central Asia and Sub-Saharan Africa.

  About Migration and Development Brief Report:

  • Prepared by: The report is prepared by the Migration and Remittances Unit, Development Economics (DEC)- the premier research and data arm of the World Bank.
  • Aim: The report aims to provide an update on key developments. Especially in the area of migration and remittance flows and related policies over the past six months.
    • The report also provides medium-term projections of remittance flows to developing countries.
  • The report is produced twice a year.

  About Remittances:

  • Remittance is money usually sent to a person in another country. The sender is typically an immigrant and the recipient a relative back home.
  • Remittances represent one of the largest sources of income for people in low-income and developing nations.

   Source: Indian Express

• Suggestions for Inclusive growth in India

  Synopsis: India lags behind many Human development indicators. India’s economic growth is not benefitting the poor. There is a need to create a new framework for measuring the inclusiveness of growth.

  Why India’s Economic growth is not inclusive?

  1. One, Rising hunger: According to the Global Hunger Index 2020 India ranks 94^th amongst 107 countries.
  2. Two, Indian citizens are amongst the least happy in the world. According to the World Happiness Report of the UN Sustainable Development Solutions Network, India ranks 144^th amongst 153 countries.
  3. Three, the Pandemic has increased the inequality gap further by pushing many poor people into poverty. According to a World Bank report, during the pandemic the very rich became even richer. Whereas the number of poor people in India (with incomes of $2 or less a day) is estimated to have increased by 75 million.
  4. Four, unsustainable economic growth. According to global assessments, India ranks 120 out of 122 countries in water quality, and 179 out of 180 in air quality.

  Suggestions for more inclusive growth

  1. First, India needs a new strategy for growth, founded on new pillars. Because the older economic growth strategy of relying on Foreign capital has made “ease of living” difficult, while the “ease of doing business” improved. The new economic strategy should be based on the following two pillars,
     • • One, Economic growth must no longer be at the cost of the environment.
       • Two, the benefits of Economic growth should be made equitable. Thus creating more incomes for its billion-plus citizens
  2. Second, there is a need for local solutions to measure the wellbeing of people, rather than relying on universal, standard progress measure frameworks.
     • • While GDP does not account for vital environmental and social conditions that contribute to human well-being.
       • Many countries are developing universally acceptable frameworks.
       • They are trying to incorporate the health of the environment, public services, equal access to opportunities, etc. to make it universal, more scientific, and objective.
       • However, experiences have shown that this ‘scientific’ approach does enable objective rankings of countries. For example, World Happiness Report misses the point that happiness and well-being are always ‘subjective’.
       • Standard global solutions will neither make their conditions better nor make them happier. So, local communities need to find their own solutions within their countries, and in their villages and towns to measure their well-being.
  3. Third, we need to start recognizing the role of societal conditions that are responsible for the difficulties of the poor. For example, Caste system, Patriarchy, indifferent attitude towards the disabled, transgender, etc.,
     • • This way of looking at things also equally contributes to the increasing Inequality.
  4. Four, move away from the centralised Governance model towards a decentralized form of governance. Because Governance of the many by a few politically and economically powerful persons may work for a few.
     • • Whereas, decentralized system of governance will allow communities to find their own solutions to complex problems.

  India’s growth should be measured on its sustainability and the improvements made in the lives of hundreds of millions of its citizens. It should be based on the size of GDP, the numbers of billionaires, the numbers of Indian multinationals.

  Source: The Hindu

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Money and Banking

• RBI’s proposal for regulation of the Microfinance sector- Explained, pointwise

  Introduction

  Recently, the Reserve Bank of India has released a Consultative Document on Regulation of Microfinance sector. The document aimed to address the concerns related to the over-indebtedness of microfinance borrowers and empowering them. The document proposes that there should be no prepayment penalty and collateral for all microfinance loans. The introduction of regulation is much needed, as the Microfinance Institutions loan portfolio has reached Rs 2.31 lakh crore at the end of FY2020, touching the lives of 5.89 crore customers.

  The microfinance sector has grown rapidly in India over the past few decades. Currently, the microfinance sector is serving around 102 million accounts (This includes banks and small finance banks) of the poor population of India. But still, there are certain inherent challenges associated with the Microfinance sector.

  What are Microfinance Institutions?

  These are organizations that offer financial services to low-income populations. They provide services such as micro loans(all loans that are below Rs.1 lakh), micro-savings, and microinsurance.

  Microfinance Institutions provide small loans to people who do not have any access to banking facilities. Their area of operation includes rural areas and among low-income people in urban areas.

  The Non-Banking Financial Company -Micro Finance Institutions (Reserve Bank) Directions, 2011 of the Reserve Bank of India (RBI) is regulating all the Non-Banking Finance Company (NBFC)-MFIs in India

  Salient provisions of RBI document on Regulation of Microfinance sector

  The suggested framework in the Document is intended to be made applicable to the microfinance loans provided by all entities regulated by the Reserve Bank. After the consultation, the RBI will release the overall guidelines for the regulation of the Microfinance Sector.

  1. A common definition of microfinance loans: there is no common definition for microfinance loans available from various microfinance entities in India. The document aims to provide one common definition for all regulated microfinance sector entities.
  2. Capping the outflow on account of repayment of loan obligations of a household to a percentage of the household income. Further, borrowers can determine the period of repayments as per their requirements.
  3. A Board approved policy for household income assessment.
  4. There should be no pre-payment penalty; no collateral requirement, and greater repayment frequency for all microfinance loans.
  5. Alignment of pricing guidelines for NBFC-MFIs with guidelines for NBFCs.
  6. Introduction of a standard simplified fact sheet on the pricing of microfinance loans. Further, MFIs need to display minimum, maximum and average interest rates charged on microfinance loans on their websites for greater transparency.
  7. Aligning pricing guidelines for NBFC-MFIs with guidelines applicable to NBFCs

  Need for RBI document on Regulation of Microfinance sector

  1. Decade-old rules and regulations: At present, Microfinance Institutions are governed by NBFC-Micro Finance Institutions (Reserve Bank) Directions, 2011. So the new document is much needed to govern the growth and misuse of Microfinance Sectors.
  2. Increased share of banks and small finance banks: After 2015 the banks and small finance banks started increasing their operations in Microfinance Sector. At present, only 35% of the Microfinance sector lies with the MFIs, the rest are with banks and small finance banks. This resulted in the following difficulties,
     • The RBI’s 2011 directions did not cover around 70 percent share in the microfinance portfolio.
     • This created a non-level playing field among the Microfinance Sector.
     • The issue of Over-indebtedness and Multiple Lending: small borrowers are able to get multiple loans from several lenders, contributing to their over-indebtedness.

  So, for creating a level playing field and cover all the regulated entities (REs) engaged in the microfinance sector, a new regulation is necessary.

  Significance of RBI document on Regulation of Microfinance sector

  1. Provides a new interest rate regulatory system for MFIs: The regulations provide a more market-based interest system. Further, the transparent pricing mechanism will provide competition among players in the microfinance sector to bring down the interest rates.
  2. The centrality of the borrower: Further, the new document places the borrower (i.e Customer) at the center of the microfinance sector. It empowers the borrowers to make an informed decision, the framework.
     • At present, with the rise in competition in the microfinance sector, the interest rates are not getting lower.
     • The document also protects the microfinance borrowers from over-indebtedness (As the document mentions that the payment of interest/loan will not exceed 50% of monthly income)
     • No prepayment penalty: This will aid the borrower(low-income households) and provide greater flexibility in repayment of the loan.
  3. Venture into other types of loans: As the consultative document removed the time limit of the loan, the institutions in the microfinance sector now can provide other types of loans. Such as affordable housing loans, loans for renewable energy, sanitation requirements, etc.
  4. Provides overall growth of the microfinance sector: With these guidelines, more and more small finance banks and banks can venture into the microfinance sector and provide benefits to a rural and low-income population.
  5. Facilitates financial inclusion: The borrower will have a wide variety of institutions to cater to his/her needs specifically. This will help in financial inclusion.

  Challenges with the microfinance sector in India

  1. Sustainability of MFIs: MFIs generally lack access to capital. Many Microfinance  Institutions are socially-oriented institutions and have little access to financial capital. So, they charge high rates of interest to attain sustainability. This was passed on at higher interest rates from their clients (who are “interest insensitive”).
  2. Impact on profits: The SLR and CRR requirements of Microfinance Institutions hampers short-term profits of microfinance sectors. Along with the operating expenses, their profit margin is very less.
  3. Impact of COVID-19 pandemic: The pandemic has impacted the microfinance sector more compare to other credit institutions. Their loan collections have taken a hit, and loan disbursals are yet to observe any meaningful growth.

  Suggestions to improve the microfinance sector

  The consultative document provides holistic reform in the microfinance sector. Along with that, certain measures can be taken to improve the sector further. Such as,

  1. Introduction of Digital technologies: Like regular banking, the MFIs also have to embrace complete digital formats for providing loans. This will improve digital literacy also among the public as MFIs focus on the low-income population.
  2. Creation of Social Impact Scorecard: The RBI should encourage all the entities in the Microfinance sector to create a Social impact scorecard and to update it regularly. This will be helpful to measure the societal change and also help in framing government policies for the low-income populations based on their specific needs.
  3. Creation of authenticated customer data: If the consultative policy turned into policy, then the MFIs cannot charge payment of interest/loan exceeding 50% of monthly income. Since the MFIs function for the low-income population, the field officers might face challenges in calculating the exact income of the household. So, apart from approving the household income, the board should also create an authenticated data of households, by including all revenue sources of low-income populations.
  4.  Verification after loan: Many times people will get the loan and use them for commercial purposes like buying mobile phones, paying interest to the moneylender, etc. The MFIs have to verify and update the loan has been properly used for the stated purpose and not for any other purpose.

  Conclusion

  The RBI’s Consultative Document on Regulation of Microfinance sector alters the complete functioning of the microfinance sector in India. The guidelines provide much-needed reforms and pave the way to recover the microfinance sector from the dreadful Covid-19 pandemic. But along with that, the RBI may introduce other suggestions to ensure the smooth functioning of MFIs.

• Significance of SC Ruling on Personal Guarantors for Corporate Loans

  Synopsis – The Apex Court has dismissed all challenges to the liability of personal guarantors for corporate loans under the insolvency code.

  Introduction

  The Supreme Court upheld a government notification of 2019 issued under the Indian Insolvency and Bankruptcy Code (IBC).

  • This allows banks to initiate insolvency proceedings against personal guarantors who are usually promoters and top officials of debt-laden companies.
  • Also, approval of a resolution plan for the corporate debtor does not end the personal guarantor’s liability.

  Central Government’s 2019 notification – It made personal guarantors a separate category of individuals. They can be approached for recovery for defaults. They can do it under the IBC as part of the insolvency proceedings against defaulting corporate entities.

  This gives additional powers to lenders [financial institutions or banks] under IBC, to recover their money.

  • In response to the 2019 notification– There were more than 40 petitions filled, where petitioners had challenged the validity and operationalization of the central notification.
  • However, the SC dismissed all the petitions stating that the government right.

  Significance of Ruling

  • Firstly, the SC judgment will boost recovery efforts of banks involving piles of bad loans.
    • This will enable banks to take simultaneous action against corporate debtors and personal guarantors.
    • As a result, the promoters [as the provider of personal guarantees] have to deal with their own insolvencies and not become an impediment/roadblock to the insolvency proceedings of the corporate debtor.
  • Secondly, by roping in guarantors, there is a greater chance that they would “arrange” for the payment of the debt to the creditor bank to save themselves.
  • Thirdly, as guarantors can be approached even if an insolvency proceeding is ongoing, Banks can enhance recovery. Because most banks agree to ‘haircuts’ when negotiating a resolution plan with a new promoter for the defaulting company.

  Way forward-

  The judgment provided the much-needed teeth to banks and financial institution far as recovery action with respect to personal guarantees was concerned.

  Source-The Hindu

• SC Ruling on Personal Guarantor’s Liability for Corporate Debt

  What is the News?

  The Supreme Court has upheld the government’s move to allow lenders to initiate insolvency proceedings against personal guarantors.

  Who is a personal guarantor?

  • To showcase their intent to repay the bank loan on time, the promoters of some big business houses submit a personal guarantee to the lenders. It secures them loans easily and timely.
  • It is sort of like an assurance from the owner or the owners of the company that the money borrowed by their company for various purposes shall be repaid on time as per the agreed schedule.
  • Furthermore, it is different from the collateral. Indian corporate laws say that individuals such as promoters are different from businesses and the two are very separate entities. Thus, a promoter can give a guarantee for the company it is running

  What is the issue?

  • In 2019, the Government issued a notification. It allowed creditors, usually financial institutions and banks, to make a move against personal guarantors under the Indian Bankruptcy and Insolvency Code(IBC).
  • The intention was to hold the guarantor promoters liable for the defaulting companies against loans.
  • However, the notification was challenged by the promoters, claiming that it was always a management board that ran the company. Therefore, the promoters alone should not be held liable for the default on debt repayment.

  What has the Supreme Court said?

  • The Supreme Court has upheld the notification issued by the Government.
  • The court said that there is a close connection between personal guarantors and their corporate debtors. Hence, it was this connection that made the government recognise personal guarantors as a separate category under the IBC.

  Significance of this judgment:

  • This judgment assumes significance as it will now allow lenders to go after personal guarantors even while bankruptcy proceedings against the ailing companies are pending. This will speed up the process for the recovery of dues.

  Source: The Hindu

   

• RBI to transfer Surplus Profit to Central Government

  What is the News? 

  The RBI (Reserve Bank of India) Central Board has approved the transfer of Rs. 99,122 crore as surplus to the central government.

  RBI’s Transfer of Surplus to Government: 

  • The Reserve Bank of India(RBI) transfers its surplus profits to the Government every year. It is according to the provisions of Section 47 of the Reserve Bank of India Act, 1934.
    • Section 47 says that surplus profits of the RBI are to be transferred to the government. Surplus profit is the profit left after making various contingency provisions for bad and doubtful debts, depreciation in assets, contributions to staff, and superannuation funds, etc.

  RBI transfer to Government for 2020-21: 

  • RBI has decided to transfer the surplus for the nine-month period of June 2020 to March 2021.
    • This was because RBI in 2020 has changed its accounting year to April-March from the earlier period of July-June.
  • Further, RBI has transferred the amount by keeping into account the Bimal Jalan Committee. The committee recommended that the RBI maintain a minimum Contingency Risk Buffer of 5.5% of its balance sheet.

  Significance of this RBI Transfer to Government:

  • The RBI’s transfer to the government is above the budgeted expectations. The budget had estimated to receive a surplus of about ₹50,000 crores from the RBI for 2021-22.
    • Reason: This was because of the higher earnings of RBI from open market operations as well as receipts from foreign currency sales,
  • Moreover, this is the highest ever transfer by the RBI to the Government in an accounting period barring 2018-19.
    • In 2018-19, RBI transferred ₹1.76 lakh crore to the government which included a one-time transfer of extra reserves.

  Impact of this Transfer: The higher-than-expected transfer will help the Government to absorb losses as:

  • The government is expecting a sharp fall in tax collections due to the severe second wave of COVID-19 which has forced lockdowns in several States.
  • The government is also likely to find it challenging to meet its privatization and disinvestment target of $24 billion. 
  • The revenue from the Goods and Services Tax(GST) is also likely to fall.
  • Moreover, the government is also under pressure as it has no option to cut expenditure given that it needs to increase investment and spur growth.

  Source: The Hindu

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Fiscal Policy

• Special treatment under GST for few states is a bad idea

  Synopsis: The issue of special allowances under GST on Covid-19 relief products is being projected as a Centre versus states issue.

  Introduction

  This is an attempt to gain political benefit on an issue of human and national importance. The structure and design of GST are being questioned. Already settled debates on the decision-making process in the GST Council are sought to be re-opened.

  • The structure and design of GST and its basic features were unanimously adopted and endorsed by Parliament and each of the state legislature. All sections and clauses were discussed and recommended by the GST Council after complete consent.
  • No state was given special privilege during consensus building. This shows maturity in the debates of the Council. Having come so far, any attempt to reopen some of the fundamental issues should be criticized.

  What is GST? The Goods and Services Tax in India is a comprehensive, multi-stage, destination-based value-added indirect tax. It has replaced many central and state indirect taxes in India such as excise duty, VAT, services tax, etc. GST is a single tax on the supply of goods and services It is considered to be a destination-based tax as it is applied to goods and services at the place where final/actual consumption happens GST is applied to all goods other than crude petroleum, motor spirit, diesel, aviation turbine fuel and natural gas and alcohol for human consumption There are four slabs for taxes for both goods and services- 5%, 12%, 18% and 28%. Although GST aimed at levying a uniform tax rate on all products and services, four different tax slabs were introduced because daily necessities could not be subject to the same rate as luxury items. ‘Dual’ GST Model: Central GST (CGST) levied by the Centre State GST (SGST) levied by State Integrated GST (IGST) –levied by Central Government on inter-State supply of goods and services. UTGST – Union territory GST, collected by union territory government

  Also read: GST Compensation issue

  Special treatment under GST is a bad idea

  Arguing for any special treatment to states under GST whose contribution to the GST pool is higher is a dangerous idea. This could lead to arguments such as special rights for bigger taxpayers, unequal voting rights in elections etc.

  • Firstly, it is not right to say that the GST collected in a state represents the revenue of that particular state. The tax deposited by a taxpayer in a state under the GST mechanism is a function of the value of supplies made by such taxpayer. Most of such values are of an inter-state nature.
    • Most supplies made from any producing state are consumed elsewhere and the revenue in such a situation naturally and rightfully adds to the destination state.
  • Secondly, it is false to say that under GST; most of the profits is collected by the Union and is given to the states on the basis of some formula. The major chunk of IGST revenue that is given to any state is directly related to the returns filed in that state.
    • This payment also comprises tax on supplies “destined” to that state, as shown in the returns of such suppliers.
  • Thirdly, the reason why some states have a higher revenue collection is because such states enjoy locational or geographical advantages. They are coastal areas and hugely suited to the needs of trade and distribution as also manufacturing.
    • However, such states have a disadvantage in the account of the lower availability of certain vital minerals like coal and iron ore. This was undone by the principle of cargo equalization implemented in the years following Independence.
  • Fourthly, the argument of unequal transfers of central receipts is also untrue. Such transfers are made for improving horizontal fiscal imbalances in a federation.

  Also read: Analysis of GST regime in India

  The conclusion
  The principle of “one state one vote” is intact and is also the norm in every civilized discourse. Even in the UN, every country has one vote. If this principle is questioned, it would lead to the undoing of the force that binds this great country. Special treatment under GST would only hamper the true spirit of cooperative federalism.

  Source: The Indian Express

  Federal Structure of Indian Polity

• Global Minimum Corporate Tax and India – Explained, pointwise

  Introduction

  The recent meeting of G7 countries resulted in the adoption of a 15% Global Minimum Corporate Tax(GMCT). The GMCT would enable the countries to add a top-up tax on companies who try to avoid taxes by showing their incomes in low tax jurisdictions.

  A Global Minimum Corporate Tax will also encourage the countries to compete on other factors like the better regulatory regime, ease of doing business, access to global talent etc. rather than merely offering a negligible taxation regime.

  The move is a step in the right direction that can further help in building consensus over OECD’s BEPS framework. However, its success or failure would depend upon the number of participants joining the Global Minimum Corporate Tax regime, as countries would not easily give up on their right to taxation and take the risk of reducing future investment towards them.

  About Global Minimum Corporate Tax (GMCT)

  • Corporation Tax or Corporate Tax is a direct tax levied on the net income or profit of a corporate entity from their business. The rate at which the tax is imposed is known as the Corporate Tax Rate(CTR).
  • GMCT is the minimum amount of corporate tax a company must pay on its income, both domestic and foreign.
  • It allows home governments to “top-up” their taxes to the agreed minimum rate, eliminating the advantage of shifting profits to a tax haven.
    • A tax haven is generally an offshore country that offers foreign individuals and businesses little or no tax liability in a politically and economically static environment.
  • Illustration: Country A has a corporate tax rate (CTR) of 20 percent, Country B has a CTR of 11 percent and GMCT is 15%. There is a Company X that is headquartered in Country A, but reports its income in Country B in order to save tax. Now with GMCT in place, country A can legally impose an additional 4% tax on Company X. 

  History of Global Minimum Corporate Tax

  • The Organization for Economic Cooperation and Development (OECD) has been coordinating tax negotiations among 140 countries for years. 
  • The organisation is determined to create global rules for taxing cross-border digital services and curbing tax base erosion, including a global corporate minimum tax.
    • Based on this, the Base Erosion and Profit Shifting Project program was initiated in 2013. 
    • It is an OECD/G20 project to set up an international framework to combat tax avoidance by multinational enterprises (“MNEs”) using base erosion and profit shifting tools.
  • The OECD asked the countries in the BEPS framework to adopt a consensus-based outcome instead of the country’s individual moves in order to tax the companies.
  • However, a consensus was not developed as countries were not willing to forgo their taxing powers that acted as a tool for attracting greater investment. 
    • Further, the developing countries were not sure if they would receive the right to tax the mobile incomes of Big tech companies.
  • On 12 October 2020, the OECD/G20 Inclusive Framework on base erosion and profit shifting (BEPS) released ‘blueprints’ on Pillar One and Pillar Two. 
    • It aims to reach a multilateral consensus-based solution to the tax challenges due to the digitalization of the world economy.
    • Pillar 1: It addresses the issue of reallocation of taxing rights to all the countries
    • Pillar 2: It aims to address all the remaining issues in the BEPS program.
  • The US’s proposal in G7 for imposing a 15% Global Minimum Corporate Tax on companies is in consonance with Pillar two.

  Current Scenario of Global Minimum Corporate Tax

  • The recent meeting of G7 countries saw a willingness to adopt a Global Minimum Corporate Tax rate.
  • The countries agreed to enforce a GMCT of at least 15%. Further, they also agreed to put in place measures to ensure taxes were paid in the countries where businesses operate. The GMCT would be applicable to companies’ overseas profits.
  • The agreement could form the basis of a worldwide deal. It would further be discussed in detail at the next meeting of G20 finance ministers and central bank governors in July 2021.

  The rationale behind the introduction of Global Minimum Corporate Tax

  • First, it would discourage Multinational Companies to shift their operations to offshore units merely for tax benefits.
  • Second, it would ensure the imposition of a realistic and uniform corporate tax throughout the world. Over the past decades, many countries have attracted investment merely by lowering corporate tax rates. This, in turn, has pushed other countries to lower their rates as well.
  • Third, it will prevent revenue loss to countries that occurred on account of lower tax structure in offshore destinations like Ireland, British Virgin Islands, Bahamas, Panama etc.
    • Countries lose out an estimated $100 billion per year in tax revenue due to the absence of GMCT.
  • Fourth, it would induce the countries to compete on other factors like better regulatory regimes, ease of doing business, access to global talent, etc. This healthy competition would create a sustainable business environment in them. 
  • Fifth, it will prevent the unilateral imposition of domestic laws by the developed world over the developing countries. For instance, the US is determined to impose its domestic law version of Pillar Two at a rate of 21% if 15% GMCT is not adopted.

  Challenges in the adoption of Global Minimum Corporate Tax

  • First, it curtails a nation’s sovereignty. Every nation possesses an independent right to formulate its domestic policy based on sovereignty granted under Article 2(1) of the UN charter. Many nations may reject GMCT on the basis of their sovereign rights.
  • Second, adoption by a few countries and rejection by others may not yield the intended results. For the effectiveness of GMCT, it should be adopted uniformly by all nations.
  • Third, the 15% rate may be more for some countries and less for others. 
    • For instance, experts believe the US Congress may not agree to the 15% proposal, as it was earlier backing a 21% rate. The 15% rate would generate less revenues.
    • Similarly, nations like Ireland where the tax rate is 12.5% may reject the proposal as it would impair fiscal autonomy for smaller jurisdictions to compete with larger economies.
  • Fourth, the GMCT would be levied by the country where the ultimate parent entity resides. This may cause a disproportionate tilt in the magnitude of economic power towards the U.S. as around 30 percent of the Forbes 2000 companies are located there. 

  India and Global Minimum Corporate Tax Rate

  • Indian Government has said that India is open to participate and engage in discussions about the Global Minimum corporate tax structure. It would generate additional revenue for the country.
    • The State of Tax Justice report of 2020 states that India loses over $10 billion in tax revenue due to the use of offshore structures. The popular locations include Mauritius, Singapore, and the Netherlands where there is an almost negligible rate of taxation.
  • If passed, the Indian government can impose a tax on offshore subsidiary units of Indian companies. The taxation can be to such a level that it enables the imposition of an effective Global Minimum Corporate Tax on every company.
  • Further, the effective tax rate, inclusive of surcharge and cess, for Indian domestic companies is around 25.17%. This is above the 15% GCMT, indicating that the country would continue to attract investment.

  Suggestions to improve Global Minimum Corporate Tax Rate

  • The Indian government should look into the pros and cons of the new proposal and take a view thereafter. It should continue to impose a 2% digital service tax on foreign companies in order to decrease the magnitude of tax base erosion due to non-taxation.
  • The next G20 meeting will see whether the G7 accord gets broad support from the world’s biggest developed and developing countries or not. Here, the countries should develop a consensus over the proposed rate and the categories to which GMCT should be applied. 
    • For instance, in recent times, the companies have increasingly shifted their income from intangible sources such as drug patents, software and royalties on intellectual property to low tax jurisdictions.
  • Post its adoption by G 20 countries, prudent steps must be taken for its adoption by all the UN members to inhibit the creation of tax havens across the world. 

  Conclusion:

  The Global Minimum Corporate Tax is a novel way of bringing parity in the taxation regimes of countries. It should be adopted at a rational rate and with a consensus of both, the developed and developing countries. A prudent rate would effectively prevent tax base erosion of the higher-tax jurisdictions.

• Problems with “one state one vote” structure of GST Council

  Synopsis:   The “one state one vote” structure under GST Council is a flawed one. It needs to be replaced with a proportional representation of voting in the GST Council. This system should be based on the size of states or their revenue contribution to the GST pool

   Background

  • In the recent GST Council meeting, there is a debate going on, whether to tax or not to tax on products essential to fighting Covid-19.
  • 12 states, representing nearly 70% of India’s population, agree to make such products tax-free.
  • But,19 states, representing the remaining 30% of the population, want to continue to levy GST on these products.
  • The lack of consensus can largely be explained by the distorted design and incentive structure of the GST itself.

  What is the distribution methodology for taxes collected under GST?

  The GST Council has representatives from all states. According to “one state one vote” all the representative have equal voting rights in GST Council.

  • The taxes collected under GST (from states) are accumulated by the Union government and a portion is transferred back to each state under a formula.

  Which states contribute maximum to the GST pool?
  Four states — Maharashtra, Tamil Nadu, Karnataka, and Gujarat contribute nearly as much (~45%) of the total GST pool

  What is the source of revenue for the states in India?

  Every state in India has two major components of revenues. These are,

  1. State’s own revenues
  2. Transfers from the Union government, consisting of both share of taxes collected by the Union and grants.

  How the source of revenue differs for bigger and smaller states?

  • Only about 30% of the overall revenue of the 4 big states, namely, Maharashtra, Tamil Nadu, Gujarat, and Karnataka, comes from the Union government.
  • But for the remaining 27 states, roughly 60% of their revenues are obtained through transfers from the Union government.
    • For the smaller Northeastern states, these transfers from the Union government constitute 80-90% of their total revenues

  Negative trends in the revenue collection & distribution in India

  • Imbalance in collection & distribution of taxes between states: As mentioned above,
    • While four big states contribute around 45% to the GST pool, they are the least dependent on the Union government for their revenue needs.
    • Whereas smaller states which contribute less to the GST pool are more dependent on the Centre’s transfers for their revenues.
    • So,
      • States that are more dependent on transfers from the Union want to maximize GST collections. This is why they are in support of taxation on Covid-related products.
      • Whereas bigger states that are less dependent can afford to be more sensitive to citizens’ concerns and are against taxing Covid related products.
    • With time, net transfers from center should decrease as states come at par in development relative to each other. But in India over the past few years, these net transfers have increased.
  • States are getting a lower share of revenues: States’ revenue has declined owing to unfair taxation practices by the Center. For instance,
    • Increase in cesses: The Union has shifted a large proportion of taxation (roughly 18% of its overall revenues) into cesses. This remains outside the GST pool and hence do not have to be shared with the states
  • So, the GST model based on “one state one vote” causes grave injustice to the developed states.

  Way forward
  A system of proportional representation, instead of one state one vote model, would not have resulted in this lack of consensus.

  • A proportional representation of voting in the GST Council either as a proportion of the size of a state or by its contribution to the GST revenue pool is the ideal way forward.

  Source: Indian Express

• The tussle of Digital Services Tax between India and US

  Synopsis:

  The US has rolled back its increased tariff on products of 6 countries including India. It now wants to negotiate, over the imposition of a digital service tax by the 6 nations. It is even willing to engage in a future trade war. 

  Background:

  • The six countries of Austria, India, Italy, Spain, Turkey, and the U.K. had imposed a Digital Services Tax (DST) on non-resident e-commerce operators. 
    • In India, a 2% digital service tax was levied on trade and services offered by non-resident e-commerce operators having a turnover of over 2 crores.

  What is the Digital Services Tax (DST) imposed by India?

  The DST imposes a 2% tax on revenue (revenue, not income. Both are different) generated from a broad range of digital services offered in India, including

  • Digital platform services
  • Digital content sales
  • Digital sales of a company’s own goods
  • Data-related services
  • Software-as-a-service, and several other categories of digital services

  India’s DST only applies to “non-resident” companies. The tax applies as of April 1, 2020, with no retrospective element (retrospective taxation means tax has to be paid on income earned in the past).

  Based on this, The Office of the United States Trade Representative (USTR) began an investigation (in June 2020) to find out the discriminatory nature of these digital taxes imposed by six countries.

  What did the USTR investigation find out?

  • In January 2021, the investigations found the digital taxes to be discriminatory in nature.
    • With respect to India, investigations concluded that India’s digital services tax (DST) of 2% discriminates against US digital companies and is inconsistent with principles of international taxation

  How did US react to the findings of the investigations?

  • The US  announced 25% tariffs on over $2 billion worth of imports from the six countries including India.
  • However, it immediately suspended the duties to allow time for international tax negotiations and due to the poor economic condition of countries during the pandemic era.

  What does this retaliatory move by US indicate?

  • First, the move shows that a hefty tax can be imposed on other countries under Section 301 of the U.S. Trade Act of 1974.
    • The section authorizes the President to take all appropriate action, including tariff-based and non-tariff-based retaliation against foreign countries.
    • The objective is to obtain the removal of any act, policy, or practice that violates an international trade agreement or is unjustified, unreasonable, or restricts U.S. commerce. 
  • Second, the move shows the U.S.’s may be willing to start a trade war for protecting the interests of its tech giants against the imposition of Digital Taxes.
  • Third, similar to the Trump administration, the new Biden administration also views digital taxes to be discriminatory in nature. It also wants dominance of the global playing field by the American tech firms without fear of being slapped with tax liabilities.

  Way Ahead:

  • The countries should engage and negotiate peacefully on the concerning provisions. Imposition of unnecessary barriers by either side would only generate adverse results.
    • For instance, U.S tariffs would impact $118 million worth of Indian exports to the country.
  • Co-operation is desired as the world can hardly afford another tariff war in the post-COVID era. 

  Source: Click here

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Monetary Policy

• Alternatives to Inflation Targeting

  Synopsis: Many economists are criticizing the RBI’s role in inflation targeting. They are suggesting alternatives to inflation targeting. Let’s have a look at them.

  Background

  1. The central government confirmed the continuance of inflation targeting as a tool to monitor inflation within the same bandwidth.
  2. The “inflation targeting” regime came into force in 2016. Recently inflation targeting has been renewed for another five years.
  3. Following this, the RBI will continue to target maintaining retail inflation within the band of 2% to 6%.
  4. RBI will use the headline inflation to control the inflation as it reflects the prices of essential consumer goods.
  5. Retail core inflation, is the inflation rate without taking into account the fluctuations in the prices of fuel and food items.

  Why many people have criticised RBI’s role in inflation targeting?

  Many have criticised the RBI’s mandate of inflation targeting because of its contradictory role.

  • RBI acts as a regulator to maintain financial stability and control prices in the economy by increasing interest rates. But this has a negative consequence on economic growth.
  • Also, RBI is responsible to boost the economy by reducing repo rates. Because Cheaper loans will make it easier for firms and governments to borrow and spend/invest thus leading to economic growth.
  • Between 2016 and 2020, many times RBI focused more on keeping retail inflation low by setting high interest. This has affected India’s economic growth.

  Alternative suggestions to inflation targeting:

  1. First, instead of headline retail inflation, the RBI should focus on the retail core inflation rate. Because fuel and food prices often shoot up in the short-term due to supply disruption.
  2. Second, RBI should not be looking at retail inflation. Instead, it should look at wholesale inflation. Because RBI’s move to tweak interest rate affects the credit available to businesses. This, in turn, is affected by wholesale inflation, and not retail inflation.
  3. Third, RBI should neither use the wholesale nor retail inflation rate as targets. Instead, the RBI should create a Producer Price Index to suit the RBI’s need.
  4. Fourth, a singular focus on maintaining price stability will be counter-productive for a developing economy such as India. They argue that the RBI should be working with the government towards ensuring fast economic growth rather than focusing on inflation targeting. Their argument is that inflation targeting is not the only way to be prudent about macro-financial stability.

  Why RBI should continue Inflation targeting?

  There are many benefits associated with Inflation Targeting. They are,

  1. First, a high inflation rate is the most regressive kind of tax. The poorest people suffer the most. By targeting inflation India can avoid hurting poor people.
  2. Second, as NPA’s or bad loans are being recognised by banks, macro-financial stability will come into sharp focus. Inflation targeting can provide such macro-financial stability.
  3. Third, Inflation targeting also takes care of supply-side bottlenecks.  For example, India’s inflation rate remains somewhat constant despite the increasing fuel prices and Covid-induced lockdowns in India.

  But, Under the given circumstances, it is a wise decision by the government to allow RBI to focus on targeting retail inflation. This will ensure that India’s poorest, who are the most hit by the pandemic will not be affected further.

  Source: Indian Express

• Need of Continuing with Inflation Targeting

  Synopsis: Inflation is still a big worry for policymakers. That is why the government is still willing to retain the inflation targeting.

  Introduction

  The Finance Ministry will continue with the inflation-targeting framework. It will guide the interest rate decisions of the RBI’s Monetary Policy Committee over the five-year period.

  • The Department of Economic Affairs notified that the inflation target for the next five years ending on March 31, 2026, will be 4%. The upper tolerance level will be 6% and a lower tolerance level will be 2%.
  • It means no change has been introduced to the framework.

  How will the announcement by the department of economic affairs be perceived?

  The announcement indicates that price stability will be the base for all macro-economic development.

  1. Firstly, the announcement is a relief as inflation pressure is rising. The recent Consumer Price Index data show retail inflation increased by almost 100 basis points in February. Food and fuel costs remain volatile till now.
     • As per IHS Markit India Business Outlook survey companies are planning to raise selling prices in the coming 12 months to cope with rising costs of raw materials.
  2. Secondly, the RBI’s officials have emphasised on the need to preserve the flexible inflation targeting framework. In a paper titled ‘Measuring Trend Inflation in India’, Deputy Governor Michael Debabrata Patra, and a colleague highlighted the importance of guaranteeing the inflation target.
  3. Thirdly, there has been a steady decline in trend inflation to a 4.1%-4.3% band since 2014. The officials said that a target lower than the trend had the risk of imparting a deflationary bias. This bias would reduce economic momentum.
     • A goal much above the trend could cause expansionary monetary conditions that would likely lead to inflation shocks.

  The conclusion

  The RBI’s researchers Report on Currency made it clear that the framework had served the economy well. The government’s economic officials have noticed that it will certainly reassure investors and savers that inflation remains a central concern for all policymakers.

  Source: click here

• Center to Retain the “Inflation Targeting” at 4% for MPC

  What is the news?

  As per the top finance ministry official, the center will retain the Inflation Targeting of 4% for MPC.

  Introduction 

  • The Centre will retain the inflation target of 4%, with a tolerance band of +/- 2 percentage points.
  • This target will be applicable for the period April 1, 2021, to March 31, 2026.
  • Recent high inflation together with low economic growth ignited the debate on the relevance of Inflation targetting.
  • However, as per 14th Finance Commission member M. Govinda Rao, the range of 2%-6% as a flexible inflation target has worked reasonably well.

  Inflation Targetting 

  Inflation targeting refers to keeping the inflation rate within the permissible band to ensure the certainty for carrying out investment activities.

  The agreement between the Reserve Bank of India (RBI) and the central government signed in February 2015. The agreement explicitly made inflation targeting the objective of the MPC while using the repo rate as the instrument for it.

  The Reserve Bank’s MPC was given the target of keeping inflation at 4% with a tolerance limit of 2%. This meant that inflation should be between 2% and 6%.

  About MPC (Monetary Policy Committee)

  • The Monetary Policy Committee (MPC) is a committee of the Central Bank of India (Reserve Bank of India). The RBI Governor heads it.
  • The Reserve Bank of India Act, 1934 (RBI Act) was amended by the Finance Act, 2016.
  • It provided for a statutory and institutionalized framework for a Monetary Policy Committee. MPC maintains price stability while keeping in mind the objective of growth.
  • The function of MPC is to fix the benchmark policy interest rate (repo rate) to contain inflation within the specified target level i.e. inflation targeting.

  Source: The Hindu

• Impact of inflation targeting in India

  Synopsis: According to the Executive Director IMF, Surjit S Bhalla, Inflation targeting has been ineffective in controlling inflation. Moreover, it has also contributed to a decline in GDP growth because of high repo rates.

  About inflation targeting

  • The concept of ‘Inflation targeting’ was got acceptance in New Zealand first. Later, 33 countries adopted it as well.
  • India formally adopted it in 2016, at the first meeting of the RBI Monetary Policy Committee (MPC).
  • The MPC considered a real repo rate of 1.25 percent as the neutral real policy rate for the Indian economy.
    • A neutral policy rate means the policy rate will be consistent with the growth potential of India.
  • The primary goal of inflation targeting is to contain inflation at around 4 percent, within the allowable range of 2 to 6 percent.

  What are the impacts of inflation targeting in India?

  The author, in his research paper, has evaluated the inflation target in a global context. It made the following conclusion based on the last 40 years for both the inflation targeting economies and the non-targeting economies.

  

  • First, countries that did not adopt inflation targeting were able to control inflation better than the countries that used inflation. For example, India’s inflation was around 5.2% (2015-19) for the same period it was 2.4% for economies that did not adopt inflation rate targeting.
  • Second, inflation depends on global variables, and it is not dependent upon one single factor. So, using an inflation targeting mechanism will not effectively control inflation. For example, 2000-04, has been the golden period of inflation all over the world even in India. During this time, inflation rate targeting was not in place in India, yet inflation was very low.
  • Third, the belief that a high Fiscal deficit will contribute to high inflation is not true. For example, FRMB act was in place after 2003. However, Inflation in India increased from 3.9% (2000-04) to 7.1% (2005-09) despite the fiscal deficit were limited as per the FRBM act.
  • Fourth, inflation targeting has negatively impacted GDP growth. High policy rates (repo) maintained to control inflation affected the cost of domestic capital. It led to a decline in investment rate thereby resulted in less GDP. For example,since2016, (after inflation rate targeting was institutionalised), there has been a steady increase in repo rates, and a steady decline in GDP growth

  Source: Indian Express

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Int. Trade and WTO

• Why Record FDI Inflow is Not a Cause for Celebration?

  Synopsis: The record level of FDI inflows in India for the year 2020-21 does not match the development priorities of the government.

  Background

  • In a recent press release, the Ministry of Commerce and Industry announced that India has attracted the highest ever total FDI inflow (U.S.$81.72 billion) during the financial year 2020-21.
  • This is 10 percent higher than the last financial year 2019-20.
  • Also, given that there was a decline in global FDI inflows in 2020 by 42% compared to 2019, and inflows to developing countries had fallen by 12%, this is a significant development.
  • Effective implementation of FDI policy reforms, investment facilitation, and ease of doing business were credited for the record level of FDI inflows.
  • However, an analysis of FDI inflow data reveals that the reality of FDI in the Indian economy does not help India’s development priorities.

  Why FDI inflows accounted for the year 2020-21 will not benefit India’s development priorities?

  • First, the nature of the bulk of the investments involves just a mere transfer of shares without creating productive assets in the country. This is contrary to the expectation that FDI can contribute to the revival of the economy
  • For instance, take the case of Reliance Group companies, the largest recipients of FDI for the year 2020-21. It accounted for 54.1% of the total equity inflows during the three quarters.
  • In this case, FDI inflows were meant to facilitate Reliance Industries to withdraw its investments already made in the form of Optionally Convertible Preference Share.
  • This, therefore, amounted to the indirect acquisition of shares held by Reliance Industries.

  Optionally Convertible preference shares: This class of shares can be converted into equity shares either at the option of the holder or at the option of the company. The convertible portion can be in full or in part

  1. Second, according to RBI, though FDI inflows were stronger in 2020-21, their distribution was highly skewed.
     • For instance, the manufacturing sector received just 17.4% of the total inflows during 2020-21.
     • Whereas, the services sector attracted nearly 80% of the total inflows, with information technology-enabled services (ITeS) being the largest component.
     • Further, according to the RBI, non-acquisition-related inflows into the manufacturing sector were the lowest in 2020-21.
  2. Third, the bulk of the investments in Reliance Group companies will not facilitate sharing of managerial experience and technical expertise. Because investors’ share is pegged at 9.9%. For instance, Facebook’s shareholding in Jio Platform was pegged at 9.9%.
     • According to the International Monetary Fund and also the RBI, a foreign investor, holding 10% or more of voting shares in a company, can exercise a significant influence on its management.
  3. Finally, there are other issues related to FDI inflows in India for the year 2020-21. For example,
     • According to RBI data, there was a 47.2% increase in repatriation/disinvestment in the year 2020-21.
     • Further, RBI reports that there was a high increase in portfolio investment (FII) for the year 2020-21. This was the second-highest level of FIIs’ involvement in India.
     • Surely, sustained sizeable repatriation of the long-term FDI, together with a large increase in speculative capital (FII’s) is not good for a country’s Economic Health.

  Source: The Hindu

• The tussle of Digital Services Tax between India and US

  Synopsis:

  The US has rolled back its increased tariff on products of 6 countries including India. It now wants to negotiate, over the imposition of a digital service tax by the 6 nations. It is even willing to engage in a future trade war. 

  Background:

  • The six countries of Austria, India, Italy, Spain, Turkey, and the U.K. had imposed a Digital Services Tax (DST) on non-resident e-commerce operators. 
    • In India, a 2% digital service tax was levied on trade and services offered by non-resident e-commerce operators having a turnover of over 2 crores.

  What is the Digital Services Tax (DST) imposed by India?

  The DST imposes a 2% tax on revenue (revenue, not income. Both are different) generated from a broad range of digital services offered in India, including

  • Digital platform services
  • Digital content sales
  • Digital sales of a company’s own goods
  • Data-related services
  • Software-as-a-service, and several other categories of digital services

  India’s DST only applies to “non-resident” companies. The tax applies as of April 1, 2020, with no retrospective element (retrospective taxation means tax has to be paid on income earned in the past).

  Based on this, The Office of the United States Trade Representative (USTR) began an investigation (in June 2020) to find out the discriminatory nature of these digital taxes imposed by six countries.

  What did the USTR investigation find out?

  • In January 2021, the investigations found the digital taxes to be discriminatory in nature.
    • With respect to India, investigations concluded that India’s digital services tax (DST) of 2% discriminates against US digital companies and is inconsistent with principles of international taxation

  How did US react to the findings of the investigations?

  • The US  announced 25% tariffs on over $2 billion worth of imports from the six countries including India.
  • However, it immediately suspended the duties to allow time for international tax negotiations and due to the poor economic condition of countries during the pandemic era.

  What does this retaliatory move by US indicate?

  • First, the move shows that a hefty tax can be imposed on other countries under Section 301 of the U.S. Trade Act of 1974.
    • The section authorizes the President to take all appropriate action, including tariff-based and non-tariff-based retaliation against foreign countries.
    • The objective is to obtain the removal of any act, policy, or practice that violates an international trade agreement or is unjustified, unreasonable, or restricts U.S. commerce. 
  • Second, the move shows the U.S.’s may be willing to start a trade war for protecting the interests of its tech giants against the imposition of Digital Taxes.
  • Third, similar to the Trump administration, the new Biden administration also views digital taxes to be discriminatory in nature. It also wants dominance of the global playing field by the American tech firms without fear of being slapped with tax liabilities.

  Way Ahead:

  • The countries should engage and negotiate peacefully on the concerning provisions. Imposition of unnecessary barriers by either side would only generate adverse results.
    • For instance, U.S tariffs would impact $118 million worth of Indian exports to the country.
  • Co-operation is desired as the world can hardly afford another tariff war in the post-COVID era. 

  Source: Click here

• Road towards a Global Minimum Corporate Tax

  Synopsis:

  The US has proposed a 15% Global Minimum Corporate Tax that will prevent tax avoidance by companies. The tax would be beneficial for India. But many counties will not accept the tax structure.

  Background:

  The Base Erosion and Profit Shifting (BEPS) programme were initiated in 2013. It aims to curb practices that allowed companies to reduce their tax liabilities by exploiting loopholes in the tax law. But to tax Big tech companies the countries have to sign a BEPS agreement among themselves.

  So the OECD also asked the countries in the BEPS framework to adopt a consensus-based outcome instead of the country’s individual moves.

  Challenges to the BEPS framework:

  • Over the past decades, there are many countries that enacted tax policies specifically aimed at attracting multinational business. These countries attract investment by lowering corporate tax rates. This, in turn, has pushed other countries to lower their rates as well to remain competitive.
  • Also, there are few Developing countries as well that are not sure if they will receive the right to tax the mobile incomes of Big tech companies

  The OECD policy note:

  • Addressing these concerns, On 12 October 2020, the OECD/G20 Inclusive Framework on base erosion and profit shifting (BEPS) released ‘blueprints’ on Pillar One and Pillar Two. 
    • It aims to reach a multilateral consensus-based solution to the tax challenges due to the digitalization of the world economy.
    • Pillar 1: It addresses the issue of reallocation of taxing rights to all the countries
    • Pillar 2: This pillar aims to address all the remaining issues in the BEPS program.
  • The US has recently put forward a proposal to impose a 15% Global Minimum Corporate Tax on companies in consonance with Pillar two.

  What is Global Minimum Corporate Tax?

  • It is a type of corporate tax. Under this, If a company moves some of its operations to another country having low-tax jurisdiction, then the company have to pay the difference between that minimum rate and whatever the firm paid on its overseas earnings.
  • For example, assume Country A has a corporate tax rate of 20 percent and Country B has a corporate tax rate of 11 percent. If the global minimum tax rate is 15 percent. Consider a situation, where Company X is headquartered in Country A, but it reports income in Country B. Then Country A will increase the taxes paid by Company X. This is equal to the percentage-point difference between Country B’s rate and the global minimum rate(15 percent).
    In short, Company X will have to pay an additional 4 percent of the tax to Country A.

  The rationale behind the 15% Global Minimum Corporate Tax proposal:

  • The US aims to minimize tax incentives and force companies to choose a place in a particular country based on commercial benefits.
    • For example, It is intended to discourage American companies from inverting their structures and operate outside the US, due to the increase in the U.S. corporate tax rate.
  • The proposal, if passed, will give other countries the right to “tax back”. For example, countries can tax, 
    • Other jurisdictions have either not exercised their primary taxing right or 
    • Have exercised it at low levels of effective taxation.

  Challenges surrounding the proposal:

  • First, the OECD was considering a 10-12% Global rate. A high rate of 15% may not be accepted by smaller countries like Ireland. Ireland charges a marginal rate of 12.5 %. They argue that a Global minimum tax would impair fiscal autonomy for smaller jurisdictions to compete with larger economies.
  • Second, the US had earlier proposed a rate of 21% that would have generated greater revenues. However, a proposal of a 15% rate may not be passed by the US congress.

  India and the Global Minimum Corporate Tax rate:

  • India did not object to the proposal as the same would generate additional revenue for the country.
    • The State of Tax Justice report of 2020 states that India loses over $10 billion in tax revenue due to the use of offshore structures. The popular locations include Mauritius, Singapore, and the Netherlands where there is an almost negligible rate of taxation.
  • If passed, the Indian government can impose a tax on offshore subsidiary units of Indian companies. The taxation can be to such a level that it enables the imposition of an effective Global Minimum Tax on every company. 

  Suggestions

  • The acceptance of a Global Minimum Corporate Tax would induce the countries to compete on other factors like better regulatory regimes, ease of doing business, access to global talent, etc.
  • However, if consensus is not built on a 15% rate, then the US can apply its domestic law version of Pillar Two at a rate of 21%.
  • Nonetheless, the countries should focus on encouraging trade and economic activity in the post-pandemic era rather than debating over disagreements on tax allocations.

  Source: The Hindu 

• “Merchandise Exports” in May surge 67% to $32.21 billion

  What is the News?

  The Ministry of Commerce and Industry has released the preliminary data on the Merchandise exports in May 2021.

  What are the key findings from the data?

   Merchandise Exports:

  • India’s merchandise exports are estimated at around $32.21 billion in May 2021. This is 67.39% higher when compared to May 2020.
    • The large rise can be attributed to a weak base due to the disruption caused by a nationwide lockdown in 2020.
  • However, comparisons with May 2019 also showed exports have grown by 7.9%, indicating a real recovery in the export sector.
  • The growth in exports was primarily due to a rise in demand for engineering goods, petroleum products, gems and jewelry, pharmaceuticals, and iron ore.

  Merchandise Imports:

  • India’s merchandise imports are estimated at $38.53 billion in May 2021. This is 68.6% higher when compared with May 2020.
  • However, the imports were 17.5% lower when compared to May 2019.

   Trade Deficit:

  • India’s trade deficit has decreased to an eight-month low. It is at $6.3 billion in May 2021 when compared to $15.1 billion in April.
  • This is due to State-level restrictions that widened over May and curbed domestic demand for both gold and oil.

  Way Forward:

  • The government needs to soon notify the RoDTEP [Remission of Duties and Taxes on Export Products] rates to remove uncertainty and help expedite new contracts with foreign buyers.

  Source: The Hindu

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Financial Market

• “SWAMIH Fund” Completes First Residential Project

  What is the News?

  The government of India’s SWAMIH (Special Window for Affordable & Mid-Income Housing) Fund has completed its first residential project in Mumbai.

  About SWAMIH Fund:

  • Firstly, SWAMIH Fund is a government-backed investment fund set up in the year 2019.
  • Secondly, Purpose: The formation of fund happened to provide relief to developers that require funding to complete a set of unfinished projects. Consequently, it will also ensure the delivery of homes to the home-buyers.
  • Thirdly, Type: The fund has been set up as a Category-II AIF (Alternate Investment Fund) debt fund registered with SEBI.
  • Fourthly, Investment manager: The Investment Manager of the Fund is SBICAP Ventures, a wholly-owned subsidiary of SBI Capital Markets. This in turn is a wholly-owned subsidiary of the State Bank of India.
  • Fifthly, Sponsor: The Sponsor of the Fund is the Secretary, Department of Economic Affairs, Ministry of Finance, on behalf of the Government of India.
  • Sixthly, Criteria for Funding of Projects: The funding will be for the projects that meet the following criteria:
    • Stalled for lack of adequate funds
    • Affordable and Middle-Income Category
    • Net worth positive projects (including NPAs and projects undergoing NCLT proceedings)
    • RERA registered
    • Priority for projects very close to completion.

  What is an Alternative Investment Fund(AIF)?

  • Alternate investment funds(AIFs) are defined under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.
  • It refers to any privately pooled investment fund(whether from Indian or foreign sources) established or incorporated in India for investing it in accordance with a defined investment policy.
    • An alternative investment is a financial asset that does not fall into one of the conventional equity/income/cash categories.
    • For example, private equity or venture capital, hedge funds, commodities, and tangible assets
  • AIF does not include funds covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.

  Categories of AIF:

   Category I:

  • Under this, there is investment of funds mainly in start-ups, SMEs or any other sector which Govt. considers economically and socially viable.
  • Examples include venture capital funds, social venture funds, infrastructure funds and other Alternative Investment Funds as may be specified.

  Category II:

  • Under this category, there is investment of funds in equity securities and inclusion of debt securities.
  • These funds do not fall in Category I and III. They also do not undertake leverage or borrowing other than to meet day-to-day operational requirements.
  • Examples include real estate funds, private equity funds (PE funds), and funds for distressed assets.

  Category III:

  • Under this category, there is investment of funds with a view to make short term return. The companies employ diverse or complex trading strategies and may also employ leverage including through investment in listed or unlisted derivatives.
  • Examples include hedge funds, PIPE Funds.

  Source: PIB

   

• SEBI’s “Business Responsibility and Sustainability Report” norms mandate ESG overview

  What is the News?

  Securities and Exchange Board of India(SEBI) has issued a circular notifying new disclosure norms on sustainability-related reporting for the top 1,000 listed companies. The new reporting will be called the Business Responsibility and Sustainability Report (BRSR). It will replace the existing Business Responsibility Report (BRR).

  Background:

  • In 2012, SEBI had introduced non-financial reporting in the form of a Business Responsibility Report(BRR).
  • The BRR report was a disclosure of the responsible business practices by a listed company to all its stakeholders.
  • The report initially covered the top 100 listed companies. It was later extended to the top 1000 listed companies from the financial year 2019-20.

  About Business Responsibility and Sustainability Report(BRSR):

  • BRSR is a notable departure from the existing business responsibility report. It is a significant step towards bringing sustainability reporting at par with financial reporting.
    • Sustainable Reporting is the disclosure and communication of environmental, social, and governance(ESG) goals. It also includes the company’s progress towards ESG goals.
  • Objective: The BRSR report will encourage businesses to go beyond regulatory financial compliance. It will make businesses to report on their social and environmental impacts.
  • As part of the annual BRSR report, companies will need to provide
    • An overview of their ESG
    • The risks and opportunities associated with the ESG
    • Approach to mitigate or adapt to the risks along with financial implications.
  • Applicability: BRSR will be applicable to the top 1000 listed entities (by market capitalization). The report will be a voluntary one for FY 2021 – 22 and a mandatory one from FY 2022 – 23.
    • Listed Entity: It is a company whose shares are traded on an official stock exchange.
    • Market Capitalization: It refers to the total market value of a company’s outstanding shares of stock. One can calculate it by multiplying the total number of a company’s outstanding shares by the current market price of one share.

  What Are Environmental, Social, and Governance(ESG) Criteria?

  • Firstly, Environmental, social, and governance(ESG) criteria are a set of standards for a company’s operations. The standards will help socially conscious investors to screen potential investments.
  • Secondly, Environmental criteria consider how a company performs as a steward of nature.
  • Thirdly, Social criteria examine how it manages relationships with its employees, suppliers, customers and the communities where it operates.
  • Fourthly, Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

  Source: The Hindu

• The pandemic won’t impact India’s “credit rating” for 2 years – Standard & Poor(S&P)

  What is the News?

  Standard & Poor’s Global Credit Ratings has organized a webinar titled “What A Drawn Out Second Covid Wave Means For India”. During that, the S&P clarified that the pandemic won’t impact the ‘BBB-‘ rating of India for 2 years. 

  What are the key outcomes of the webinar?

  • An increase in coronavirus cases in India could threaten the strong economic recovery of India.
  • India’s GDP would decrease to 9.8% under a moderate scenario and 8.2% under a severe scenario based on when the wave peaks. This is in comparison with the baseline forecast of 11% growth for the period.
  • India’s sovereign rating will remain unchanged at the current level of BBB- for the next two years.
  • However, the pandemic will impact household consumption and retail activity due to
    • Increase in Covid-19 cases,
    • Limited healthcare system capacity.
    • The localized lockdowns.
  • The second Covid-19 wave will not have any major impact on the government’s fiscal position in a moderate downside scenario. But there could be upside pressure on the fiscal deficit as revenue generation could be weaker.

  What is a Credit Rating?

  • Firstly, a credit rating is a quantified assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation.
  • Secondly, a credit rating can be assigned to any entity that seeks to borrow money. An entity can be an individual, a corporation, a state or provincial authority, or a sovereign government.
  • Thirdly, the three big Global Credit Rating Agencies are Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s(S&P).
  • Fourthly, credit rating agencies in India came into existence in the late 1980s. Some credit rating agencies registered under SEBI are CRISIL, ICRA CARE, and Fitch India.
  • Lastly, a higher credit rating boosts the investor’s confidence in a country. Because the higher rating will interpret low risk and higher financial stability.

  What is Investment Grade Ratings?

  • An investment-grade rating signifies the rating agency’s belief that the rated instrument is likely to meet its payment obligations.
  • In the Indian context, debt instruments rated ‘BBB-‘ and above are classified as investment-grade ratings.
  • Instruments with the ratings ‘BB+’ and below are classified as speculative-grade category ratings
    • Instruments rated in the speculative grade are considered to carry materially higher risk and a higher probability of default compared to the investment grade.

  Source: The Hindu

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  PLAYING MUSICIAL INSTRUMENTS as a hobby

• SEBI technical group submits report on “Social Stock Exchanges(SSE)”

  What is the News?

  A technical group on Social Stock Exchanges (SSEs), constituted by the Securities and Exchange Board of India (SEBI) has submitted its report.

   About Social Stock Exchange(SSE):

  • Social Stock Exchange(SSE) is a platform that allows investors to invest in select social enterprises or social initiatives.
    • Social Enterprise is a revenue-generating business. The primary aim of social enterprise is to achieve a social objective such as providing healthcare or clean energy.
  • Aim: The aim is to help social and voluntary enterprises to raise capital in form of equity or debt or a unit of the mutual fund.
  • Global Examples: SSE exists in countries such as Singapore, UK among others. These countries allow firms operating in social sectors to raise risk capital.
  • India: The proposal to set up SSEs in the country was first floated during the Union Budget in 2019.
    • In 2019, SEBI constituted a group under the chairmanship of Tata group veteran Ishaat Hussain.
    • In 2020, SEBI again set up the Technical Group(TG) under Harsh Bhanwala, ex-Chairman, NABARD. This time for getting further expert advice and clarity on SSE. That committee submitted its report.

  Key Recommendations on Social Stock Exchanges:

  • Eligible Entities: The group has said that both for-profit (FP) and not-for-profit organisations(NPO) should be allowed to tap the SSE.
  • Parameters: The group has said three parameters for eligibility as Social Enterprises. The parameters are:
    • A Social Enterprise should engage in at least one of the below eligible activities
    • Further, it should target underserved or less privileged population segments or regions
    • Also, a Social Enterprise shall have at least 67% of its activities qualifying as eligible activities to the target population.
  • Prohibited Organisations: Political and religious organisations, trade organisations, and corporate foundations should not be allowed to raise funds through SSEs.
  • Eligible Activities: Social enterprises can engage in activities such as:
    • Eradicating hunger, poverty, malnutrition and inequality;
    • Promoting health care (including mental health) and sanitation including making available safe drinking water.
    • Activities promoting education, employability and livelihoods.
    • Promoting gender equality, empowerment of women and LGBTQIA+ communities.
    • Ensuring environmental sustainability, addressing climate change (mitigation and adaptation), forest and wildlife conservation.
    • Also, the activities promoting livelihoods for rural and urban poor. This includes enhancing the income of small and marginal farmers and workers in the non-farm sector.
    • Slum area development, affordable housing and other interventions to build sustainable and resilient cities.
  • Annual Report: Entities listed on SSE will have to disclose their social impact report on an annual basis. This report should cover aspects such as “strategic intent and planning, approach, impact scorecard”.

  Source: Indian Express

  Finance Commission

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Employment

• WHO-ILO Study on the Impact of Long Working Hours

  What is the News?

  The World Health Organization(WHO) and the International Labour Organization (ILO) has published a study on the Impact of Long Working Hours.

  About the study:

  • The study covered global, regional, and national level data from more than 2,300 surveys collected in 154 countries from 1970-2018.
  • It covered 37 studies on ischemic heart disease covering more than 768 000 participants and 22 studies on stroke covering more than 839 000 participants.

  Key Findings of the study:

  • Deaths due to Long Working Hours: Long working hours have led to 745,000 deaths from stroke and ischemic heart disease in 2016. This is a 29% increase since 2000.
  • Gender and Region-wise: The work-related disease burden is more in men (72% of deaths occurred among males). Whereas people living in the Western Pacific and South-East Asia regions, and middle-aged or older workers faced the majority of deaths.
  • Age Wise: Most of the deaths recorded were among people dying aged 60-79 years who had worked for 55 hours or more per week between the ages of 45 and 74 years.
  • The number of people working long hours is increasing and currently stands at 9% of the total population globally. This trend puts even more people at risk of work-related disability and early death.

  Conclusion:

  • The study concludes that working 55 or more hours per week is dangerous. It is associated with an estimated 35% higher risk of a stroke and a 17% higher risk of dying from ischemic heart disease compared to working 35-40 hours a week.

  Suggestions: Governments, employers, and workers can take the following actions to protect workers’ health:

  • Government can introduce, implement and enforce laws, regulations, and policies. That is to ban mandatory overtime and ensure maximum limits on working time;
  • Collective bargaining agreements between employers and workers’ associations can arrange a working time to be more flexible. While at the same time, they can agree on a maximum number of working hours.
  • Employees could share working hours. It will ensure that the number of hours worked does not climb above 55 or more per week.

  Source: Indian Express

   

• Unemployment Rate in India Shoots up to 8% in April: CMIE

  What is the News?

  Centre for Monitoring Indian Economy(CMIE) report on unemployment in India has been released. As per the report Unemployment Rate in India is increasing.

  Key Findings of the Report:

  • Increase in Unemployment rate: The Unemployment rate in India has increased to 8% in April 2021 from 6.5% in March 2021.
    • Unemployment Rate(UER) is the percentage of the labor force who are willing to work and are actively looking for a job but are unemployed.
  • The labour participation rate(LPR) was 40% in April 2021. It is the worst since the national lockdown was imposed in May 2020.
    • LPR is the ratio of the working age population greater than 15 years of age to labor force either working or looking for work. In other words, it measures the number of persons engaging in the labour force as a percentage of the working-age population.
  • Salaried Class: The size of the salaried class has also decreased in India. During 2019-20, there were 85.9 million salaried jobs. As of April 2021, there were just 73.3 million. This may impact the domestic consumption of the country.
  • Lack of Demand: Lack of demand is hampering further growth due to the impact on income and consumer sentiment. Income is lower than it was a year earlier. 90% of families have seen income shrinkage.
  • Migration of workers: Migration from urban areas to rural areas due to loss of jobs in cities has also increased the burden on the agriculture sector and rural India.

  About CMIE:

  • CMIE is a privately owned and professionally managed company headquartered in Mumbai. It was established in 1976 primarily as an independent think tank.
  • Purpose: It produces economic and business databases. It also develops specialized analytical tools to deliver these to its customers for decision-making and for research.

  Source: The Hindu

• Systemic Issues affecting Women’s Participation in labour Market

  Synopsis: The burden on Women during the Pandemic increased disproportionately due to Societal norms, a male-dominated job market, and a lack of gender-sensitive policy making. This article provides a solution to address these issues.

  Background

  • Gender inequality in terms of employment is high in India. For instance, only 18% of working-age women were employed as compared to 75% of men.
  • Lack of good jobs, restrictive social norms, and the burden of household work are the main reasons for this widening Gender divide in employment.
  • After the Pandemic, the Gender gap in employment has further widened. Women workers, in particular, have borne a disproportionate burden.

  What factors are affecting Women’s participation in labour market?

  The data from the Centre for Monitoring Indian Economy has revealed the following.

  • First, during the lockdown, job losses were disproportionately high for women as compared to men. The reasons were,
    • Job security for men is high: 61% of male workers were unaffected during the lockdown while only 19% of women experienced this kind of security.
    • Male-dominated work culture: 47% of employed women who had lost jobs during the lockdown, had not returned to work whereas it was only 7%, in the case of Men.
    • Further, Despite the nature of Industry, Women lost a greater number of Jobs compared to Men. For instance, in the education and Health industry.
    • More fallback options for men: Between 2019-2020, 33% of formal salaried men moved into self-employment and 9% into daily wage work. In contrast, only 4% and 3% of formal salaried women moved into self-employment and daily wage work.
    • Burden of care: This is one of the major reasons for poor employment recovery among Women.
  • Second, during the lockdown, women’s domestic work increased manifold. According to the India Working Survey 2020, among employed men, the number of hours spent on paid work remained more or less unchanged after the pandemic.
    • But for women, the number of hours spent in domestic work increased manifold. This increase in hours came without any accompanying relief in the hours spent on paid work.

  What needs to be done?

  • First, increase employment opportunities. The state can do it by following ways:
    • Expanding the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)
    • Introduction of an urban employment guarantee targeted towards women.
    • Setting up of community kitchens.
    • Prioritizing the opening of schools and Anganwadi centers
    • Engagement with self-help groups for the production of personal protective equipment kits
  • Second, direct income support. A COVID-19 hardship allowance of ₹5,000 per month for six months can be announced for 2.5 million accredited social health activists and Anganwadi workers, most of whom are women.
  • Third, Policy support to address issues related to Women workforce.
    • The National Employment Policy should systematically address the issues related to the availability of work and household responsibilities.
    • Envisioning universal basic services Programme. It not only fills existing vacancies in the social sector but also expands public investments in health, education, child and elderly care.
    • It can also alleviate Women’s problems such as nutritional and educational deficits and domestic work burdens.

  Source: The Hindu

• Record 11 Crore Worked Under “MGNREGS” in 2020-21

  What is the News?

  According to Government data, over 11 crore people worked under the Mahatma Gandhi National Rural Employment Guarantee Scheme(MGNREGS) during the financial year 2020-21.

  Key Facts Related to MGNREG Scheme during 2020-21:

  • During the financial year 2020-21, around 11 crore people worked under the MGNREGS.
  • This is the first time since the launch of the scheme in 2006-07 that the MGNREGS  numbers crossed the 11-crore mark in a year.
  • Further, the 11 crore mark is also higher by about 41.75% in 2019-20 when about 7.88 crores worked.
  • The expenditure on MGNREGS has also increased. In 2020-21, the total expenditure was 62.31% higher than in 2019-20.

  Note: As part of the economic package during the Covid-19 pandemic, the government announced additional funding of Rs 40,000 crore for the MGNREGS over and above the budgetary allocation of  2020-21.

  Number of Days People Worked under MGNREGS:

  • In 2020-21, the number of households that completed 100-day employment reached an all-time high of 68.58 lakh, an increase of 68.91% from 40.60 lakh in 2019-20.
  • The average days of employment provided per household too went up marginally from 48.4 days in 2019-20 to 51.51 days in 2020-21.

  MGNREG Scheme:

  • MGNREGS is one of the largest work guarantee programmes in the world.
  • Launched in: The scheme was initially launched in the 200 most backward rural districts of the country in 2006-07. The scheme was later extended to an additional 130 districts during 2007-08 and to the entire country from 2008-09 onward.
  • Under the scheme, every rural household whose adult member volunteers to do unskilled manual work is entitled to get at least 100 days of wage employment in a financial year.
  • Implementation: Ministry of Rural Development (MRD), Government of India in association with state governments monitors the implementation of the scheme.

  Key Features of the scheme:

  • Demand-driven scheme: Worker to be hired when he demands and not when the Government wants it.
  • Gram Panchayat is mandated to provide employment within 15 days of work application failing which worker is entitled to unemployment allowance
  • Payment of wages within 15 days of competition of work failing which worker is entitled to delay compensation of 0.05%/ day of wages earned.

  Source: Indian Express

   

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Energy

• Energy efficiency needs behavioral change: Study

  Synopsis:

  A study in Bangalore found that to improve Energy efficiency we need to improve behavioural change and start shifting towards energy-efficient appliances.

  Introduction:

  Recently, a study in Bengaluru examined the usage of thermal comfort services like space cooling and water heating and their impact on energy efficiency. The study highlighted the need for efficient appliances and behavioural change to improve energy efficiency.

  About the Study:

  A survey was conducted among 403 households in Bengaluru, Karnataka. The survey collected data related to various aspects of users such as their income, the appliances owned by them, household demographics and time and duration of use of appliances.

  The report of the survey was published as “A Policy-driven approach to demand management from space cooling and water heating appliances: insights from a primary survey of urban Bengaluru” recently.

  Key findings of the study:

  1. The study found that efficient electrical appliances in households form a major role in lowering the electricity demand.
  2. The study also found voluntary behaviour changes also play a key role in electricity demand.
  3. The study examined the use of fans and found out these are used approximately 12 hours a day. On average, a low-efficiency fan consumes approximately 75 watts (W), while five-star fans consume 50 W. So, an energy-efficient fan can save approximately 110 units per year per fan

  Various initiatives towards energy efficiency:

  • Domestic Efficiency Lighting Programme (DELP): It is a Programme under the UJALA programme. The plan offers LED bulbs at 20-40 per cent of the market price and provides a monthly payment plan for low-income households
  • The India Cooling Action Plan (ICAP): India is the first country in the world to develop such a document (ICAP). It is launched by the Ministry of Environment, Forest and Climate Change.
    • The plan aims to provide sustainable cooling and thermal comfort for all while securing environmental and socio-economic benefits for society.
    • The plan provides a 20-year roadmap (2017-18 to 2037-38) and recommendations, to address the cooling requirements across sectors
    • Objectives of the ICAP:
      • Reduction of cooling demand across sectors by 20% to 25 % by the year 2037-38.
      • Reducing the refrigerant demand by 25% to 30% by the year 2037-38.
      • Reduction of cooling energy requirements by 25% to 40% by the year 2037-38.
  • Private power distribution companies like Tata Power Co Ltd and Reliance Energy in Mumbai provide schemes to exchange old fans for efficient ones.

  Source: Down To Earth

• Problems with discoms need radical reforms

   

  Synopsis: To completely recover from problems with Discoms , India needs radical reforms in the Power sector. Financial aid packages from Centre to Discoms forms only a part of a solution.

  Background

  • For long, the scenario has been that the Centre has to step in to aid Discoms and tackle the problems plaguing the distribution side of the power sector.
  • However, the results of such interventions have not yielded any significant improvements in the health of Discoms.
  • The analysis of the performance of Ujwal DISCOM Assurance Yojana (UDAY) reveals the same.

  Analysis of the performance of UDAY and Problems with Discoms

  • UDAY scheme was introduced by the centre to bring financial Turnaround, Operational improvement of Discoms. Further, it aims to reduce the cost of generation of power, to facilitate the development of Renewable Energy and Energy efficiency & conservation.
  • Though some states witnessed an improvement in their financial and operational indicators, it wasn’t sustained. There has been a sharp deterioration in several parameters after the UDAY scheme.
  • First, The UDAY scheme had envisaged bringing down these losses to 15% by 2019.
    • However, as per data on the UDAY dashboard, the (Aggregate Technical & Commercial) AT&C losses currently stand at 21.7% at the all-India level.
    • In the case of the low-income north and central-eastern states Uttar Pradesh, Bihar, Jharkhand and Chhattisgarh the losses are considerably higher.
  • Second, The UDAY scheme had envisaged eliminating the gap between power costs and revenue by now.
    • However, the gap between power costs and revenue stands at Rs 0.49 per unit due to the absence of regular and commensurate tariff hikes.
    • In the high-income southern states of Tamil Nadu, Andhra Pradesh, and Telangana, this gap between costs and revenues is significantly higher.

  Also read: Problems faced by power sector in India

  What are the reasons for the problems with discoms?

  • Lack of metering: Minimizing the AT&C losses is critical to improve the operational efficiency of Discoms.
    • However, even six years after UDAY was launched, various levels in the distribution chain (the feeder, the distribution transformer (DT) and the consumer) have not been fully metered.
    • As a result, it difficult to isolate and identify loss-making areas and take corrective action.
  • Decrease in revenue generation owing to the Pandemic
    • Revenue from industrial and commercial users is used to cross-subsidize other consumers.
    • However, owing to the Pandemic the demands from industrial and commercial users is falling. This leads to stress on discom finances.
  • Absence of political consensus at the state level to raise tariffs: Many states report losses as they could not eliminate the gap between power costs and revenue.
    • For instance, recently, Opposition parties in Karnataka recently protested against a tariff hike of 30 paise
  • The Centre’s “Electricity for all” programme have contributed to greater inefficiency.
    • Because, to support higher levels of electrification, cost structures need to be reworked. Similarly, the distribution network (transformers, wires, etc) need to be augmented. In the absence of such measures, losses are bound to rise.

  Suggestions to address the problems with discoms

  • One, the creation of a national power distribution company to ensure procurement of electricity at competitive prices.
  • Two, deduct discom dues, owed to both public and private power generating companies, from state balances. After that, the RBI can force states to take the necessary steps to fix discom finances.
  • Three, linking additional state borrowings to the completion of distribution reforms.

  Source: The Indian Express

• Energy Efficient homes are key to low Carbon Economy  

  Synopsis: The demand for cooling appliances is bound to grow in the future to keep citizens healthy and productive. Thus, Energy Efficient homes will be the key to make India a low carbon economy.

  Background:

  • In the last three decades, India experienced 660 heat waves which caused 12,273 deaths.
  • These intense heat waves are expected to rise with a rise in global temperatures due to climate change.
  • This rising frequency and growing intensity of heat waves are resulting in increased demand for cooling in Indian homes.
  • The growing demand for cooling will make India the world’s largest energy user for cooling, but this area has not gained much significance in Indian homes.

  Why India needs energy-efficient cooling in Indian homes?

  • Firstly, it is going to play a huge role in India’s adaptation to climate change.
  • Secondly, energy inefficiency in Indian homes cooling system will have disastrous effects on mitigation efforts taken by India to curb Greenhouse gas emissions.
    • The India Cooling Action Plan projects the number of room air conditioners to become about four times in the next 10 years, and about 10 times in the next 20 years.
  • Thirdly, large-scale adoption of efficient cooling appliances is essential to achieve a low carbon economy as per the Paris climate deal.

  Read Also :-How to increase energy efficiency?

  Why Energy efficiency in homes remains underexplored in India?

  1. Firstly, there is a lack of data regarding consumer’s preference for energy-efficient cooling systems.
     • For example, how and why people make their purchase decisions.
  2. Secondly, the implications of an increase in residential cooling demand have not been carefully examined by policymakers in India.
     • For instance, the factors which will determine the extent of future cooling demand have no empirical evidence.
  3. Thirdly, energy efficiency does not feature as a priority in the purchase of cooling appliances.
     • For instance, only 7% of the households have an energy-efficient (star-rated) fan, and 88% of the coolers are locally assembled.
  4. Fourthly, there is a lack of awareness about energy efficiency.
     • For example, one-third of the households are unaware of the Star Labelling program.
     • It is a government programme mandatory for refrigerators and air conditioners.
  5. Lastly, there is the higher upfront cost and low market availability for energy-efficient appliances.

  Way forward:

  • Investment in cooling technologies, infrastructure is required to lock in energy-efficient consumption patterns.
  • Awareness campaigns should be conducted on energy efficiency.
  • Subsidies and financial incentives are needed to drive up the adoption of more efficient technologies.
  • Efficient building designs can also help in reducing dependence on energy-intensive cooling technologies.

  Indian homes can play a major role to achieve net-zero emissions but along with the usage of energy-efficient technologies, there is a need to promote alternative cooling strategies.

  Read Also :-Issue of Nuclear Waste pollution 

  Source: The Hindu

• Ethanol Blending of Petrol and its challenges: Explained, pointwise

  Introduction

  Recently the Prime Minister announced to prepone the 20% ethanol blending of petrol to 2025. The government has also identified 11 sectors that can leverage resources by recycling them through modern technology.

  Earlier, the government has set targets of 10% bioethanol blending of petrol by 2022 and to raise it to 20% by 2030 under the Ethanol Blended Programme (EBP). By the recent announcement, India’s EBP target of 20% will be achieved five years earlier.

  About Ethanol

  Ethanol is one of the principal biofuels. It is naturally produced by the fermentation of sugars by yeasts or via petrochemical processes such as ethylene hydration. Ethanol has medical applications as an antiseptic and disinfectant. It is used as a chemical solvent and in the synthesis of organic compounds, apart from being an alternative fuel source.

  Why the world needs Ethanol Blending?

  At present, the global transportation sector is facing three major challenges, namely

  • Depletion of fossil fuels,
  • Volatility in crude oil prices and
  • Stringent environmental regulations.

  Alternative fuels specific to geographies can address these issues. Ethanol is considered to be one of the most suitable alternatives for blending, transportation fuel due to its better fuel quality (ethanol has a higher octane number) and environmental benefits.

  Why India needs Ethanol Blending?

  According to NITI Aayog, India’s net import of petroleum was 185 Mt at a cost of US $ 55 billion in 2020-21. Hence, a successful Ethanol Blended Programme can save the country US $4 billion per annum, i.e. Rs. 30,000 Crore.

  • Besides, ethanol is also a less polluting fuel and offers equivalent efficiency at a lower cost than petrol. But, achieving the target is not an easy one and India need drastic reforms to achieve that.

  About 20% Ethanol blending of petrol

  The National Policy on Biofuels – 2018, provides an indicative target of 20% ethanol blending (also called E20) under the Ethanol Blended Petrol (EBP) Programme by 2030.

  • According to the Society of Indian Automobile Manufacturers (SIAM), Ethanol blending at present is 10%(E10). But, a sufficient quantity of ethanol is not available in India. Therefore, only around 50% of petrol sold in India is E10 blended, while the remaining is unblinded petrol (E0). The current level of average blending in the country is 5% (2019-20 data).
  • India at present has an ethanol production capacity of 426 crore ltr. For the targeted E20 by 2030, the country will need approximately 1,000-crore ltr capacity.

  Government programs aimed to improve Ethanol Blending

  1. Ethanol Blended Petrol(EBP) programme:
     • It was launched in 2003 by the Ministry of Petroleum & Natural Gas (MoP&NG).
     • Aim: To achieve a blending of Ethanol with Petrol. It was aimed to reduce pollution, conserve foreign exchange and benefits for farmers. It increases value addition in the sugar industry.
     • Implementation: The Government is implementing the programme through Oil Marketing Companies (OMCs).
  2. National Policy on Biofuels (NBP) -2018: This policy envisages an indicative target of blending 20% ethanol in petrol by 2030.
     
  3. Ethanol from Sugarcane: Government has allowed the production of ethanol from sugarcane and food grain-based raw materials.
  4. BS-VI emission norms are also applicable for E-20 Vehicles.
  5. Department of Food and Public Distribution (DFPD) is the nodal department for the promotion of fuel-grade ethanol-producing distilleries in the country
  6. Pradhan Mantri JI-VAN (Jaiv Indhan- Vatavaran Anukool fasal awashesh Nivaran) Yojana: The scheme aims to create an ecosystem for setting up commercial projects and boost Research and Development in the 2G Ethanol sector.
     

  Challenges in achieving 20% Ethanol Blending in India

  1. Less Production: Currently, domestic production of bioethanol is not sufficient to meet the demand for ethanol for blending with petrol at Indian Oil Market Companies.
     • Sugar mills are the key domestic suppliers of bio-ethanol they supply 57.6% of the total demand. But there are certain limitations with them. Such as,
       • Sugar mills do not have the financial stability to invest in biofuel plants.
       • These mills are heavily concentrated on certain regions alone.
  2. Inter-state movement of ethanol: The central government amended the Industries Development and Regulations Act to ensure smooth implementation and transportation of Ethanol across the country. But only 14 states have implemented the amended provisions. As a result, states that produce ethanol more than the requirement for blending cannot transport the Ethanol to other states.
  3. Non-uniform availability: Ethanol is not produced or available in some states for ethanol blending. About 50% of total pump nozzles in India are supplying only E0. This is especially in large fuel pumps in North-East states. 
  4. The transport of ethanol to different places for blending will increase the cost of logistics and transport-related emissions.
  5. Infrastructural challenges: Marketing places require an underground tank, pipes/hoses and dispensing units for ethanol-blended petroleum supply at retail outlets. This will create space constraint at various present retail outlets.
  6. Challenges to vehicle manufacturers: Even though, Vehicles made in India are material compatible with E10 and fuel-efficient compliant with E5 since 2008. There are certain inherent challenges. Such as,
     • With the proposed target of E20, the vehicles are now required to become both materials compatible and fuel-efficient compatible for E20 fuel.
     • The cost of E20 compatible vehicles is expected to be higher

  Suggestion to achieve 20% Ethanol Blending in India

  1. Augmenting Ethanol producing capacity: According to NITI Aayog, to achieve 20% ethanol blending, India has to augment both the sugarcane-based and grain-based ethanol production capacities by 78% and 187% respectively.
  2. Uniform availability of ethanol blends: All the states have to implement the amended Industries Development and Regulations Act for facilitating the Inter-state movement of ethanol.
  3. Faster environmental clearances: Currently, ethanol production plants/distilleries fall under the “Red category” and require environmental clearance under the Air and Water Acts for new and expansion projects. The government can remove them from the red category. This will facilitate more ethanol production plants/distilleries
  4. Suggestions for Vehicle manufacturers: Once India achieves E20 the government will push towards E-85 fuel (85% ethanol by volume), E100 [pure ethanol] and ED95 [95% ethanol and 5% additives (co-solvent, corrosion inhibitors and ignition improvers)] for diesel vehicles. So, the vehicle manufacturers have to produce equipment future-ready.
  5. Pricing of Ethanol blended petrol: For better acceptability of higher ethanol blends in the country, the retail price of blended petrol should be lower than normal petrol. The government can consider providing tax breaks on ethanol.
     • To ensure predictability and to encourage investment by entrepreneurs, the government has to declare a floor price of ethanol for five years.

  Conclusion

  Ethanol blending of petrol is not only a national imperative but also an important strategic requirement. The government should make rapid moves to put in place a favorable regulatory and retail ecosystem for safe, and effective use of ethanol-blended petrol.

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Infrastructure (roads, ports, airports and railways)

• Indian Vessels Act, 2021

  Introduced: Lok Sabha (22^nd Jul 2021)
  Passed: Lok Sabha and Rajya Sabha.
  Present status: Received the assent of the President on the
  11th August, 2021

  About Indian Vessels Act, 2021:

  • Indian Vessels bill, 2021 seeks to replace the Inland Vessels Act, 1917. The bill aims to regulate the safety, security and registration of inland vessels.

  Key Features of the Indian Vessels Act, 2021:

  •  Unified Law:
    • The Bill provides for a unified law for the entire country, instead of separate rules framed by the States.
    • This means that the certificate of registration granted under the proposed law will be deemed to be valid in all States and Union Territories.
    • Moreover, there will also be no need to seek separate permissions from the States.
  • Central Database of Vessels:
    • The Bill provides for a central database for recording the details of the vessel, vessel registration, crew on an electronic portal. The Bill defines such vessels to include ships, boats, sailing vessels, container vessels, and ferries.
  • Mandatory registration of Vessels:
    • The bill requires all mechanically propelled vessels to be mandatorily registered.
    • On the other hand, all non-mechanically propelled vessels will also have to be enrolled at the district, taluk or panchayat or village level.
  •  Prevention of pollution:
    • Vessels will discharge or dispose sewage, as per the standards specified by the central government. State governments will grant vessels a certificate of prevention of pollution, in a form as prescribed by the central government.

  About Inland Waterways:

  • India has about 14,500 km of navigable waterways which comprises rivers, canals, backwaters, creeks among others.
  • About 55 million tonnes of cargo are being moved annually by Inland Water Transport (IWT), in a fuel-efficient and environment-friendly mode.

  About Inland Waterways Authority of India (IWAI):

  • Inland Waterways Authority of India (IWAI) was constituted in 1986 for the development and regulation of inland waterways for shipping and navigation.
  • Purpose: The Authority primarily undertakes projects for the development and maintenance of IWT infrastructure on national waterways. IWAI did this through the grants received from the Ministry of Shipping.

   

• What is Kerala’s “SilverLine project”?

  What is the News? Kerala cabinet has given the approval to begin acquiring land for the SilverLine Project.

  About SilverLine Project:

  • SilverLine Project is Kerala’s semi high-speed railway project that aims to reduce travel time between Kerala’s northern and southern ends.
  • Distance: The railway line will be around 529 kms long, covering 11 districts through 11 stations. It will link the southern end and state capital Thiruvananthapuram with its northern end of Kasaragod.
  • Implementation: The Kerala Rail Development Corporation Limited(KRDCL) will execute this project.
    • KRDCL is a joint venture between the Kerala government and the Union Ministry of Railways.
  • Significance of the Project: Once the project is completed, one can travel from Kasaragod to Thiruvananthapuram in less than four hours on trains travelling at 200 km/hr. The current travel time on the existing Indian Railways network is 12 hours.
  • Duration of the Project: The deadline for the project is 2025.

  Expected Benefits of SilverLine Project: As per the Government, the silver line project will:

  • reduce greenhouse gas emissions
  • help in expansion of Ro-Ro services
  • produce employment opportunities
  • integrate airports and IT corridors and
  • faster development of cities it passes through.

  Read more– Kerala Model to tackle Covid Pandemic 

  Challenges:

  • Land Acquisition: The deadline for the project i.e. by 2025 is not realistic due to the challenging nature of land acquisition in a highly densely populated state like Kerala.
  • Environment Cost: The environmentalists are opposing this project due to the potentially irreversible impact on the state’s rivers, paddy fields, and wetlands, triggering floods and landslides in the future on the proposed route.

  Source: Indian Express

• “One Nation One Standard Mission” and “Research Designs & Standards Organization”

  What is the News?

  Indian Railways Research Design & Standards Organization(RDSO) has become the nation’s first institution to be declared as Standard Developing Organization(SDO) under the “One Nation One Standard” mission.

  About One Nation One Standard Mission:

  • One Nation One Standard was first conceived in 2019 by the Bureau of Indian Standards(BIS).
  • The mission is on the line of one nation, one ration card scheme in order to ensure quality products in the country.

  Objectives of the One Nation One Standard Mission:

  • To aggregate and integrate the existing capabilities in standardisation. Further, it will also provide dedicated domain-specific expertise available with various organizations in the country.
    • This will enable one template of standard for one given product instead of having multiple agencies set it.
  • To enable the convergence of all standard development activities in the country, resulting in One National Standard for One Subject. This will help in establishing a Brand India identity in the long run.

  SDO Certification:

  • To attain the One Nation One Standard vision, BIS launched the Standard Developing Organization(SDO) recognition scheme.
  • The recognition is valid for 3 years and will require renewal after completion of the validity period.

  About Research Designs & Standards Organization(RDSO)

  • RDSO is the sole R&D Wing of the Ministry of Railways. It was founded by integrating the Central Standards Office (CSO) and the Railway Testing and Research Centre(RTRC) into a single unit in 1957.
  • Purpose: It is one of India’s leading Standard formulating bodies undertaking standardization work for the railway sector.
  • Location: It is situated in Lucknow, Uttar Pradesh.

  Read Also :-The International Labour Organization 

  Benefits of SDO Recognition for RDSO:

  • RDSO will be recognized on international standards-making bodies and there will be integration with global supply chain/global trade
  • The competitiveness amongst the industry will increase
  • There will be a reduction in cost and quantum improvement in the quality of product and services
  • There will be smooth induction of the latest evolving & emerging technologies on Indian Railways
  • Dependence on imports will reduce and “Make-in-India” will get a boost
  • Improved ease-of-doing-business.

  Source: Financial Express

• “Mekedatu Project” – A Panel to investigate charges of illegal construction

  What is the News?

  The National Green Tribunal(NGT) has formed a committee to investigate the alleged violation of norms in the construction of the Mekedatu project across the Cauvery river. The NGT has also directed the panel to submit a report on or before July 5.

  About Mekedatu Project:

  • Mekedatu project is a balancing reservoir and drinking water project. It is to be built at the confluence of the Cauvery and Arkavathi rivers by the Karnataka Government.
  • Purpose: The project aims to solve the drinking water problems of the Bengaluru and Ramanagara district. It would also generate 400 MW of hydroelectric power.
  • Dispute: The Tamil Nadu Government has objected to the project saying Karnataka had not sought prior permission for the project.
    • Tamil Nadu has also filed a petition in the Supreme Court in 2018 seeking a stay on the project.

   Objections by Tamil Nadu Government:

  • Firstly, the Mekedatu project would affect the flow of Cauvery water to Tamil Nadu.
  • Secondly, Karnataka has no right to construct any reservoir on an inter-state river without the consent of the lower riparian state i.e. Tamil Nadu in this case.
    • The project is also against the final order of the Cauvery Water Disputes Tribunal (CWDT). During that, the SC held that no state can claim exclusive ownership or assert rights to deprive other states of the waters of inter-state rivers.
  • Thirdly, The CWDT and the SC have found that the existing storage facilities available in the Cauvery basin were adequate for storing and distributing water. So, the Tamil Nadu Government is demanding outright rejection of the project.

  Other concerns with the project:

  • Almost 63% of the forest area of the Cauvery Wildlife Sanctuary will be submerged in the project.

  Source: The Hindu

   

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Industries and Industrial Policies

• Draft e-commerce rules and their challenges – Explained, pointwise

  Introduction

  The government has proposed changes to the e-commerce rules under the Consumer Protection Act to make the framework under which firms operate more stringent. It comes 11 months after the Government notified the Consumer Protection (E-Commerce) Rules, 2020, The latest proposals aim towards greater compliance and protecting the interests of consumers.

  Ministry of Commerce and Industry has earlier released a few sets of rules to govern the e-commerce operators. Now, the new rules are issued by the Consumer Affairs ministry to deal with ‘unfair’ trade practices that hurt customers.

  Several proposals in the draft e-commerce rules are aimed at increasing liabilities for online retailers. Major industry bodies, including the Confederation of Indian Industry (CII), Federation of Indian Chambers of Commerce & Industry (FICCI) are expected to hold meetings with e-commerce firms and other stakeholders, to discuss amendments to the e-commerce rules.

  About the Draft E-commerce rules

  1. Mandatory registration for e-commerce entities: Any online retailer will first have to register itself with the Department of Promotion for Industry and Internal Trade (DPIIT).
  2. Appointing a chief compliance officer.
  3. A nodal contact person for 24×7 coordination with law enforcement agencies,
  4. Requiring e-commerce entities offering imported goods or services to ‘incorporate a filter mechanism to identify goods based on country of origin
  5. Suggest alternatives to ensure a fair opportunity to domestic goods’.
  6. Specific flash sales or back-to-back sales “which limit customer choice, increase prices and prevents a level playing field are not allowed”.
     • Govt will not seek disclosure of other flash sales from e-commerce companies
  7. All e-commerce entities must provide information within 72 hours on any request made by an authorised government agency, probing any breach of the law including cybersecurity issues.
  8. Introduced the concept of “fall-back liability”: The rules made the e-commerce firms liable in case a seller on their platform fails to deliver goods or services due to negligent conduct, which causes loss to the customer.

  According to the proposed rules, the consumer affairs ministry is planning fresh guidelines for e-commerce companies, including the appointment of a chief compliance officer, etc.

  Need for the draft e-commerce rules

  • Uncompetitive trade practices: The two large e-commerce players(Amazon and Flipkart) have been contending with accusations that their pricing practices are skewed to favor select sellers on their platforms and that their discounting policies have hurt offline retailers. Further, The Competition Commission of India wants to conduct antitrust probes to investigate business practices (Amazon and Flipkart).
    • The Media investigations suggest this to be the case: Internal documents from Amazon, for instance, showed that just 35 of the 400,000-odd sellers on its platform account for two-thirds of sales, suggesting that it extends preferential treatment to a handful of sellers.
    • The e-commerce platforms are both players and regulators, as they provide the marketplace and also compete directly with other sellers using it. This creates a conflict of interest. 

  Advantages of the draft e-commerce rules

  1. Equal protection to all:
     • The rules restrict e-commerce companies from “manipulating search results or search indexes”. It is a long-standing demand from sellers and traders to prevent preferential treatment to certain platforms.
     • Further, the rules also mandate the logistics service provider to not provide differentiated treatment between sellers of the same category.
     • The rules also protect against unfair trade practices and also against misleading advertising.
  2. Push for made-in-India products: The e-commerce companies will have to provide domestic alternatives to imported goods. This will boost made-in-India goods.
  3. Lead to more accountability: The proposed amendments will lead to more accountability from stakeholders of e-commerce firms. The e-commerce companies need to provide an explanation on how they rank the products, which consumers can understand easily, and also create transparency.
  4. Weed out fly-by-night operators: With mandatory registration for e-tailers with DPIIT, the fraudulent e-commerce operators can be tackled.

  Challenges with the draft e-commerce rules:

  

  1. Greater oversight over all online platforms: Following on the heels of the recent IT (Intermediary Guidelines and Digital Media Ethics Code) Rules, the draft e-commerce amendments show the Government’s increasing enthusiasm to exercise greater oversight over all online platforms.
  2. Cannot sell retail products of their own: The new rules mention “none of an e-commerce entity’s ‘related parties and associated enterprises is enlisted as a seller for sale to consumers directly”. This impacts several platforms that retail products supplied by vendors with arm’s length ties.
     • Any entity having 10 percent or more common ultimate beneficial ownership will be considered an “associated enterprise” of an e-commerce platform
     • However, this would not only affect the business operations of Amazon and Flipkart, but even domestic players like Tata and Reliance would find it difficult to integrate multiple brands and sell their products through super apps.
  3. Legal challenges overburden Judiciary: The enforcement of many of these norms is bound to spur extended legal fights. This will overburden the Judiciary.
     • The rules will open the door to subjective government intervention. For instance, flash sales are prohibited if they are back-to-back and limit customer choice. The decision on whether a sale violates these terms remains vulnerable to regulatory interpretation.
  4. Impact on growth and job creation: The new e-commerce rules create over-regulation, along with a scope for interpretative ambiguity in rules. This will retard growth and job creation in the hitherto expanding e-commerce sector.
  5. Discourage MSMEs: E-commerce also has provided MSMEs with a wider audience to sell their products. Tightening of rules for marketplaces will discourage these MSMEs from coming online.
  6. Deprive the strategic autonomy: The proposed draft rules look like a manual for micro-management of e-commerce companies like pre-1991 Licence Raj. Further, If all e-com websites are forced as generic market platforms, these companies could lose their ability to outperform rivals and serve the market’s ultimate cause.
     • These rules appear to be catering to traditional retailers, who have been increasingly unhappy with the huge success of deep discount festive-season flash sales on Amazon and Flipkart.
  7. Contradiction with Commerce and Industry Ministry rules:
     • The new draft rules said no related parties and associated enterprises should be listed as sellers on marketplaces. On the other hand, the Commerce ministry rules forced companies like Amazon to bring down their shareholding in what they called preferred sellers to 24%. This was done to provide a more level playing field among sellers. This creates confusion on the rules.
  8. Other issues:
     • It is not clear, how identifying goods based on “country of origin” will offer domestic manufacturers a better deal unless it is assumed that consumers are driven by patriotism rather than value.
     • Unlike the last set of rules issued by the commerce ministry, this draft doesn’t distinguish between foreign and domestic e-commerce.

  Conclusion

  1. Appoint a single nodal agency: The government needs to remove ambiguities that arise from multiple ministries governing the e-commerce sector. So, the government needs to appoint a single nodal agency and streamline rules for online marketplaces.
  2. Need final laws: Until the government doesn’t come with final laws to govern the sector, e-commerce companies will continue to create more structures and build complicated supply chains to evade the current norm. 

  The new rules will only create a new set of problems and possibly give support to some inefficient competitors. So, the new draft rules need a relook.

  Sources

  • Policy Creep (The Hindu) 
  • Explained: The draft rules for e-commerce companies, and how it will impact online shoppers | Explained News,The Indian Express 
  • Trade bodies to discuss amendments to e-commerce rules this week (Livemint) 
  • A regulatory straitjacket could stifle e-commerce (Livemint) 
  • Govt will not seek disclosure of flash sale from e com firms (BS) 
  • New e-commerce rules expand govt role in the business (BS) 
  • Provide ‘level playing field’ for desi goods, govt tells e-tailers (TOI) 
  • Why E-commerce Is Upset Over New Draft Rules (TOI) 
  • A Policy Mess (TOI)

• “Gold hallmarking” Becomes Mandatory

  What is the News? The government has announced the phased implementation of mandatory Gold Hallmarking of Jewelry, with effect from June 16, 2021.

  What is gold Hallmarking?

  • The Bureau of Indian Standard (BIS) operates the gold and silver hallmarking scheme in India. It defines hallmarking as the accurate determination and official recording of the proportion of a precious metal(gold) in an article(Jewelry).
  • Hence, this means that it will guarantee the purity or fineness of precious metal articles.

  Which metals are covered under the scheme?

  • The Government of India has notified two categories under the purview of hallmarking—gold jewelry and gold artifacts and silver jewelry and silver artifacts.
  • Therefore, hallmarking in India is available for the jewelry of only two metals—gold and silver.

  Which metals have been exempted from hallmarking?

  • Export and re-import of jewelry as per Trade Policy of Government.
  • Jewelry for international exhibitions and government-approved B2B domestic exhibitions.
  • Watches, fountain pens, and special types of jewelry such as Kundan, Polki, and Jadau.

  What was the need of making Gold Hallmarking mandatory?

  • India is the biggest consumer of gold. However, the level of hallmarked jewelry is very low in the country. At present, only 30% of Indian gold jewelry is hallmarked.
  • This is due to the non-availability of sufficient assaying and hallmarking centers (A&HC) responsible for a low level of hallmarked jewelry. Hence, Gold Hallmarking has been made mandatory.

  Phase wise implementation:

  • In the first phase, gold hallmarking will be available only in 256 districts.
  • Jewelers having an annual turnover above Rs 40 lakh will come under its purview.
  • Moreover, there will be no penalty imposed till August 2021.

  Read Also :-Contribution and Criticism of Supreme Court

  Source: Indian Express

• “OFB Corporatisation” Approved by Cabinet

  What is the News? The Union Government has approved a plan for Ordnance Factory Board(OFB) Corporatisation.

  About Ordnance Factory Board(OFB): Ordnance Factory Board(OFB) is an umbrella body of 41 Ordnance Factories. Origin: In 1775, British authorities accepted the establishment of the Board of Ordnance in Fort William, Kolkata. This marked the official beginning of the Army Ordnance in India. Nodal Ministry: It is currently a subordinate office of the Ministry of Defence (MoD). Mandate: It provides a major chunk of the weapon, ammunition, and supplies for Indian armed forces, paramilitary forces, and police forces. Headquarters: Kolkata, West Bengal

  Corporatisation of OFB (Ordnance Factory Board):

  • Ordnance Factory Board(OFB) will be dissolved. It will be replaced by seven new Defense Public Sector Undertakings (DPSUs). Each undertaking will have a specific manufacturing role.
  • The 41 factories under the OFB will be subsumed under one or the other of the seven new companies. These all will be 100% government-owned public sector undertakings(PSU).
  • There would be no change in the service conditions of the OFB employees.
    • All OFB employees (Group A, B, and C) from different production units will be transferred to the corporate entities on deemed deputation for an initial period of two years.

  Significance of Corporatization of OFBs: The restructuring of OFBs is aimed at achieving the following objectives:

  • Making it a productive and profitable asset;
  • deepen specialisation in the product range;
  • enhance competitiveness;
  • improve quality and cost-efficiency
  • overcome various shortcomings in the existing system and provide these companies opportunities in the market, including exports
  • Provide more autonomy, as well as improve accountability and efficiency.

  Source: The Hindu

   Read Also :-Center is primed to amend Factories Law

• Govt launches the first phase of “MCA21 version 3.0” online portal

  What is the News?

  The government of India has launched the first phase of the MCA21 version 3.0 to its digital corporate compliance portal.

  About MCA21:

  • Firstly, MCA21 is the online portal of the Ministry of Corporate Affairs(MCA). It was initially launched in 2006.
  • Secondly, Purpose: It has made all company-related information accessible to various stakeholders and the public.
  • Thirdly, Significance: It is India’s first mission mode e-governance project.

  About MCA21 version 3.0:

  • This MCA21 version 3.0 (V3.0) is being implemented in two phases. The first phase has been launched now. The second and final phase is likely to be launched in October 2021.
  • This version leverages the use of the latest technologies to further streamline the Corporate Compliance and stakeholders’ experiences.

  First Phase: The first phase consists of the following features:

  • Revamped website of MCA: This will refresh the user experience with an enhanced look and feel.
  • E-Book: It will provide easy access to the updated legislation along with a tracking mechanism for historical changes in the law.
  • E-consultation module: It will facilitate virtual public consultation of proposed amendments and new legislation introduced by MCA from time to time.

  Significance:

  • The MCA21 V3.0 will give new meaning to a corporate compliance culture. It will further enhance the trust and confidence in the Corporate regulatory and governance system.
  • This new version will also reduce the requirements of attachments, make the forms web-based and strengthen the pre-fill mechanism.

  Source: Hindu Businessline

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Other sectors

• NITI Aayog releases “Fast Tracking Freight in India” Report

  What is the News?

  NITI Aayog and Rocky Mountain Institute(RMI) has released a report titled “Fast Tracking Freight in India: A Roadmap for Clean and Cost-Effective Goods Transport”.

  Objectives of the Fast Tracking Freight in India Report:

  • Establish a coherent vision for a cost-effective, clean, and optimised freight transport system in India.
  • Quantify the economic, environmental, and public health benefits of the freight system.
  • Describe techno-economically feasible solutions that would collectively deliver those benefits.

  India’s Logistics Sector:

  • Currently, India’s logistics sector represents 5% of India’s Gross Domestic Product (GDP). The sector employs around 2.2 crore people.
  • India handles 6 billion tonnes of goods each year, amounting to a total annual cost of INR 9.5 lakh crore.
  • These goods represent a variety of domestic industries and products:
    • 22% are agricultural goods,
    • 39% are mining products and
    • 39% are manufacturing-related commodities.
  • Trucks and other vehicles handle most of the movement of these goods. Railways, coastal and inland waterways, pipelines, and airways account for the rest.

  Read Also :-Important Articles for Interview – 2020-21

  Measures need to accommodate more urban citizens:

  • India’s freight activity will grow five-fold by 2050 and about 400 million citizens move to cities. So, a whole system transformation can help uplift the freight sector.
  • This transformation will be defined by tapping into opportunities such as:
    • Increasing share of rail-based transport
    • Optimisation of logistics and supply chains.
    • Shift to electric and other clean-fuel vehicles.
  • These solutions can help India save Rs. 311 lakh crore cumulatively over the next three decades

  Other measures recommended by the Fast Tracking Freight in India Report:

  The Logistic sector can reduce its rising CO2 emissions and high logistic costs by following measures:

  • Increasing the rail network’s capacity
  • Promoting intermodal transport
  • Improving warehousing and trucking practices
  • Policy measures and pilot projects for clean technology adoption and
  • Stricter fuel economy standards.

  Benefits of these measures: These measures will lead to the following benefits:

  • Reduces the logistics cost by 4% of GDP
  • Achieves 10 gigatonnes of cumulative CO2 emissions savings between 2020 and 2050
  • Reduces nitrogen oxide (NOx) and particulate matter (PM) emissions by 35% and 28%, respectively until 2050.

  Read Also :-Mobilising Electric Vehicle Financing in India

  Source: PIB

   

• NITI Aayog Releases “Investment Opportunities in India’s Healthcare Sector” report

  What is the News?

  NITI Aayog released a report titled, ‘Investment Opportunities in India’s Healthcare Sector’.

  Purpose of the Investment Opportunities in India’s Healthcare Sector Report:

  • The report outlines the range of investment opportunities in various segments of India’s healthcare sector. This includes hospitals, medical devices and equipment, health insurance, telemedicine, home healthcare, and medical value travel.

  India’s Healthcare Industry:

  • Firstly, Healthcare Sector Growth Rate: India’s healthcare industry is growing at a Compound Annual Growth Rate (CAGR) of around 22% since 2016. At this rate, it is expected to reach USD 372 Billion in 2022.
  • Secondly, Employment: In 2015, the healthcare sector became the fifth-largest employer. It employed around 4.7 million people directly.
    • As per estimates of the National Skill Development Corporation (NSDC), healthcare can generate 2.7 Million additional jobs in India between 2017-22.
  • Thirdly, India’s FDI Regime for Healthcare Sector: India’s Foreign Direct Investment(FDI) regime in the Health Sector has been liberalised extensively.
    • Currently, FDI is permitted up to 100% under the automatic route for the hospital sector and manufacture of medical devices.
      Automatic route: The non-resident investor or Indian company does not require prior approval from the Government of India for the investment.
    • Further, in the pharmaceutical sector, FDI is permitted up to 100% in greenfield projects. For the brownfield projects, it is up to 74% under the automatic route.
  • Fourthly, FDI Inflows: India’s FDI in the Healthcare Sector has increased considerably over the last few years. The FDI has increased from USD 94 Million (2011) to USD 1,275 Million (2016), This is a jump of over 13.5 times.

  Source: PIB

• Concerns with the Insurance (Amendment) Bill, 2021

  Synopsis:The Insurance (Amendment) Bill, 2021 has few important concerns. But the move is a welcome step to the Insurance sector.

  Introduction:

  The Lok Sabha has passed the Insurance (Amendment) Bill, 2021. The Bill had earlier been cleared by the Rajya Sabha also. Now it only requires the presidential assent to become a law.

  About the Insurance (Amendment) Bill, 2021:

  1. The Bill amends the Insurance Act,1938. The Bill seeks to increase the maximum foreign investment allowed in an Indian insurance company from 49% to 74%.
  2. However, such foreign investment may be subject to additional conditions as may be prescribed by the Central Government. The conditions include,
     • The majority of directors on the Board and key management persons in health and general insurance companies has to be resident Indians.
     • At least 50% of directors of the Insurance companies have to be independent directors.
  3. The bill also removes restrictions on ownership and control.

  Click Here to Read more about the Insurance (Amendment) Bill

  Concerns with the Insurance (Amendment) Bill:

  There are certain key concerns raised by the critics of the bill. These include,

  1. The present actual share of FDI in the insurance sector is less than the current limit of 49%. Further, the present target was aimed to achieve within 5 years. But that is not achieved so far. Hence, there is no justification for increasing the limit to 74%.
  2. Infusion of market funds in the insurance sector is not viable. The critics mention the time when financial institutions like DHFL, Yes Bank have collapsed, infusing market funds might lead to the collapse of insurance institutions also.
  3. The Bill does not have a provision to prevent financially weak foreign companies from entering into the Indian insurance sector.
  4. Many Indian insurance companies are already in Joint Venture with foreign companies. Hence, the Government’s claim that foreign investment is needed for bringing newer technology to the country is not substantiated.

  Government’s response to the concerns:

  1. The bill is aimed at solving some long-term capital availability issues in the insurance sector.
  2. The banking and insurance industry fall under the strategic sectors according to the government’s strategic disinvestment policy. The 74% cap is just a limit posed on the FDI. Hence, there should be no apprehension on privatization.
  3. The bill will increase competition in the insurance sector. This will in turn facilitate affordable schemes for middle-class people.
  4. Half of the market share of the Indian insurance sector is already held by private companies. The public sector insurance market share is merely 38.78%. On the other hand, the private sector enjoys 48.03% of the market share. So the increase in FDI is essential to improve the insurance penetration further.

  The Insurance (Amendment) Bill might facilitate insurance penetration among middle-class Indians. But the adequate safety mechanisms have to put in place to check the insurance companies.

  Source: The Hindu

• Spectrum Auctions in India – Explained, Pointwise

  Introduction

  The department of telecommunication (DoT) successfully conducted the spectrum auctions in March 2021. The government generated over Rs 77,000 crore from the auction as compared to Rs 45,000 crore expected

  However, the government has skipped the sale of the much-coveted 5G airwaves in this round. Auctions for that would be done in the future.

  Similarly, even though the spectrum auctions earned crores of money to the government, Only 37% of the airwaves found buyers in the recent auction due to various issues. In this article, we will explain the various issues with Spectrum auctions.

  

  Source: Economic Times

  About the recent spectrum auction

  • The DoT offered spectrums across the 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz and 2500 MHz bands. The last auction took place in 2016.
  • Both Indian and Foreign companies were eligible to bid for the auction. Foreign companies required to 
    • Either set up a branch in India and register as an Indian company or 
    • Tie-up with an Indian company to be able to retain the airwaves after winning them.
  • The three largest telecom service providers in India(Jio, Airtel, and Vodafone Idea) brought the majority of the spectrum.
  • The successful bidders will have to pay 3% of Adjusted Gross Revenue (AGR) as spectrum usage charges.
    • AGR is divided into spectrum usage charges and licensing fees that are fixed between 3-5% and 8% respectively.

  What is spectrum?

  • Devices such as cellphones, radio, wifi, etc. require signals to connect with one another. These signals are carried on airwaves. These airwaves must be sent at designated frequencies to avoid any kind of interference.
  • Such airwaves are called the spectrum. The various frequencies are subdivided into bands.
    • Frequency is the number of repetitions of the wave that one can see in a period. 
    • If a wave repeats slowly, it is low frequency. If the wave repeats more, then it is called high frequency. Hertz(Hz) is the unit of Frequency.
  • Range of various devices:
    • Radio – 100-200 Megahertz (Mhz)
    • Telecom – 800 Mhz – 2300 Mhz
    • Wifi – Earlier it was 2.4 Ghz and now enhanced to 5 Ghz.

  What is a spectrum auction?

  • The Union government owns all the publicly available assets within the geographical boundaries of the country. This includes the airwaves also. So the government has the right to sell the airwaves.
  • The selling of airwaves as a band for a certain period is known as Spectrum Auctions. The central government through the DoT(Department of Telecom) auctions these airwaves from time to time. 
  • The government performs spectrum auctions after dividing the entire country into telecom circles. Presently India is divided into 22 telecom circles. 
  • All these spectrums are sold for a certain period of time, after which their validity lapses, which is generally set at 20 years.
  • With the expansion in the number of cellphones, wireline telephone and internet users, the need to provide more space for the signals arises from time to time.
  • Telecom companies are willing to set up the required infrastructure to use the waves once they auctioned the particular spectrum. 

  History of spectrum auctions

  • The first spectrum auction in India was conducted for a 900MHz band, in 1994. 
  • After the 2001 auction, the government switched to an administrative allocation model. Under this, the government would select the companies best suited for developing India’s telecom infrastructure. 
  • However, this didn’t yield a positive result, and the spectrum was licensed at far lower rates than what was raised by auction. 
  • Post 2G spectrum case, the government again switched to the spectrum auction method.

  Need of spectrum auctions

  • Prohibit Interference: The primary objective is to prevent interference in signal transmission. Dedicated bandwidth in a spectrum ensures smooth transmission for radio, cellular and wifi services.
  • Determine Fair Value of Spectrum: Spectrum auctions will help in determining the right value of airwaves and creates a spirit of competition in the telecom sector.
  • Source of Revenue: The government is able to earn substantial revenue from spectrum auctions. For example, in the latest spectrum auctions, the government earned more than 77000 crore due to the higher demand for spectrums.
  • Rising Population: United Nations Population report has predicted that India would surpass China as the most populous country in the future. With this, more spectrum would be required to serve a growing user base. 
  • Technological Advancement: The movement from 4G to 5G would require allocating more spectrum for new services. The proposed 5G allocation in 2022 would see the debut of airwaves in the 3300MHz-3600MHz band.
  • Expiring Licences: The spectrum is generally allocated for a 20-year period. After that, it is imperative to conduct spectrum auctions. For example, Various licenses of telecom companies like Jio were expiring in July 2021. So the government has to perform spectrum auctions for those spectrums before the licences got expired.

  Issues in spectrum auctions

  • High Reserve Price: The government before conducting auctions, reserves a price for a spectrum. Telecom companies have to place bids for spectrum above the reserve price only. But the government usually fixes a higher reserve price, so spectrum attracts only fewer buyers.
    For example, Only 37% of the airwaves found buyers in the recent auction due to the high reserve price. The 700 MHz band failed to attract buyers as the reserve price was placed at 1.97 lakh crore.
  • Obsolete Auction Format: The government has not updated the spectrum auction format for a long time. Due to which a persistent fall in the number of bidders is witnessed.
  • Competition from Voice Over Internet Protocol (VoIP) subscribers: Over The Top (OTT) providers are providing substitute goods such as VoIP. 
    • This allows them to capture a greater share of customers while remaining somewhat invisible to government regulators. 
    • This hinders the position of telecoms and reduces their willingness to pay more in spectrum action.
  • Allocation of unlicensed spectrum for Wi-Fi: Wi-Fi shares the load of the carrier network and reduces the demand for mobile network capacity. 
    • If the government wants to expand the Wi-Fi facilities, it needs to keep more spectrum unlicensed. The more the unlicensed spectrum allocation, the lower will be the demand for licensed spectrum.
  • Clarity over Future Spectrum Auctions: The amount of spectrum that will be allocated for the 5G auction is not clear. It is creating confusion among companies like acquiring the spectrum now or waiting for subsequent auctions.
  • Regulatory Framework: The poor framework has resulted in the forceful exit of various players from the telecom sector. This automatically impacts the potential of spectrum auction as more bidders mean better prices.
  • High Upfront Fees: Some experts are also demanding rationalisation of 50% upfront fees on some spectrum bands. High fees place a greater financial burden on telecoms which impairs their functioning.    

  Suggestions to improve Spectrum Auctions

  • Grossly unrealistic pricing of the spectrum should be rationalized. The Department of Telecommunications(DoT) should consult with TRAI and other stakeholders for rationalising the price.
  • The government should release more unlicensed spectrum for multiplying Wi-Fi as a suitable supplement to the carrier network. This will increase the placements of the Public Wi-Fi project which got the approval of the cabinet recently.
  • The government should provide clarity about future auctions, especially the 5G spectrum bands.
  • Further, the government should release guidelines on future Spectrum Auctions. It will enable the telcos and OTTs to join hands in providing superior and better services for the benefit of the consumers.
  • The time frame for paying spectrum fees should be enhanced so that the financial burden on telecom operators gets reduced. 

  Conclusion

  Spectrum is a perishable scarce resource and loses its value if left unused. It is important for the government to ensure that the spectrum put on the block is sold in the most optimum way. This can be rightly done by balancing the interests of business, government and consumers.

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Land Reforms

• Model Tenancy Act: Need and Challenges – Explained, pointwise.

  Introduction

  The Union Cabinet chaired by the Prime Minister has approved the Model Tenancy Act and circulated it to all States/Union Territories. The Ministry of Housing and Urban Affairs had earlier released the draft guidelines in July 2019. The Act aims to bridge the trust deficit between tenants and landlords by clearly delineating their obligations. It aims to create a vibrant, sustainable, and inclusive rental housing market in the country.

  However, the success of the act depends upon the ground level realisation of the notified provisions. Further, it is not binding on states as Land is a state subject under List 2 of the Seventh Schedule. Therefore, optimum benefits would be generated only when states adopt the act in letter and spirit. 

  Salient features of the Model Tenancy Act

  • Mandatory Rent Agreement: The act makes it mandatory to create a written lawful rent agreement between the owner and tenant. 
  • Rent Authority: The Act requires establishing rent authorities in every district to regulate renting of premises. 
    • Both the landlord and tenant will have to submit a copy of the rent agreement to the district Rent Authority. 
    • The proposed authority will also provide a speedy adjudication mechanism for the resolution of disputes.
  • Tribunal and Courts: It calls for creating dedicated tribunals and courts for dealing with tenancy related disputes. 
  • Security Deposit: The act puts a cap on the amount of security deposit. It will be a maximum of two months of rent in case of residential premises and six months in case of non-residential premises.
  • Subletting: The act bars tenants from subletting the property in part or whole.
  • Vacating Rental Premises: It says that if a landlord has fulfilled all the conditions stated in the rent agreement, then the tenant has to vacate the premises. 
    • If the tenant fails to vacate the premises, then the landlord is entitled to double the monthly rent for the first two months and four times after that.
  • Increase in Rent: The rent can be revised according to the terms and conditions mentioned in the agreement. If there is no such agreement, the landowner will have to give a 3 months notice to the tenant before revising the rent.
  • Coverage: The Act will apply to premises rented for residential, commercial, or educational use but not for industrial use. It also won’t cover hotels, lodging, etc. This model law will be applied prospectively and will not affect existing tenancies.

  Need of the Model Tenancy Act

  1. Obsolete Laws: The current tenancy regime is governed by the decades-old Rent Control Act, 1948 and its varied versions adopted by the state governments. 
     • These obsolete laws are more biased towards the tenant and were made with the sole intention of preventing exploitation of tenants by landlords.
     • Further, many of the old laws have not amended in over two decades, ensuring that the rent ceiling remains capped at the levels prevalent in the late 90s.
  2. Institutionalise the Rental Market: Currently, the rental market is largely informal in nature. The rents are raised anytime, summary eviction of tenants is quite common. Sometimes the malicious tenants are seen illegally occupying the rented property. All this would be curtailed by the enactment of the new act as it forbids verbal rental agreements. 
  3. Better Grievance Redressal: The establishment of a rent authority in every district and provision for rent courts/tribunals will enable quick and efficient settlement of disputes. The current process of dispute settlement through traditional courts is very long and expensive.
  4. Encourage Renting:  As per Census 2011, nearly 1.1 crore houses were lying vacant in urban areas across the country. The act gives sufficient rights to landowners, which may encourage greater renting and reduce homelessness.
     • Further, the act will encourage the private sector to develop housing projects for rent purposes.
     • In India, the rental yield for residential property is quite low, even in bigger cities. It is in the range of 1.5% to 3% of the capital values due to obsolete laws.
  5. Preventing Unnecessary Financial Burden: The act places a cap of two months on the security deposit. This reduces financial strain on tenants and encourages more renting.
     • Currently, the security deposit in Mumbai and Bengaluru can reach 6-8 times the monthly rent.
  6. Respecting the privacy of the Tenant: The landlords in India have a habit of entering the rented property as per their will. It violates the tenant’s Right to Privacy under Article 21 of the Indian Constitution. But now a notice of 24 hours needs to be given before entering. 
  7. Minimise creation of Unauthorised Colonies: As renting would be made safer and easier, therefore people would be disincentivized to live in slums and unauthorised colonies.

  Challenges with the Model Tenancy Act

  1. Non-Binding nature: Land and Urban Development is a state subject. The states may or may not adopt the proposed law, as done by them in the case of Real Estate (Regulation and Development) Act.
  2. Prospective effect: The new model act would have a prospective effect. This means it would be applicable to future disputes only, hence past disputes would continue to linger on for years.
  3. Inadequate Security Cover: Security Cap for two months may not be enough to cover damages, especially during the last month when tenants adjust their rent in the security deposit.
  4. Lacunae in the formation of the Act: The act fails to properly define the term ‘habitation’. Further, it fails to mention the penalty if the owner delays in paying back the security deposit. Also, it is altogether silent on sudden leave and license arrangements.

  Suggestions

  1. States must immediately adopt the Model Tenancy act as per their peculiar needs. However, they should refrain from diluting the true spirit of the act like the West Bengal did it with WB HIRA. 
  2. Further, they can allow retrospective application of the act for some specific set of cases in order to expedite the grievance redressal process.
  3. States will have to invest time and resources to set up rent authorities, rent tribunals and rent courts for effective implementation of the Model Tenancy Act.

  Conclusion

  The government has laid a good framework that balances the social welfare of tenants and the economic interests of landlords. The states now just need to adopt the Model Tenancy Act as per their peculiar requirements. This will help them in releasing the dream of Housing for All by 2022.

• Model Tenancy Act

  Introduced: The Bill was introduced as a Government Bill (Ministry of Housing and Urban Affairs)
  Present Status: Model Act is enacted and circulated to States

  Aim of the Act:

  • To create a vibrant, sustainable, and inclusive rental housing market in the country.
  • It will address the issue of homelessness by creating adequate rental housing stock for all the income groups. It aims towards the goal of housing for all by 2022.
  • Lastly, it will institutionalize rental housing by gradually shifting it towards the formal market.

  Coverage:

  • The Act will apply to premises rented for residential, commercial, or educational use but not for industrial use. It also won’t cover hotels, lodging, etc.
  • This model law will be applied prospectively and will not affect existing tenancies.

  Key Features of the Model Tenancy Act:

  Tenancy agreement:

  • The Model Act states that to rent any premises, a written agreement must be signed between the landlord and the tenant. The agreement must specify:
    • the rent payable
    • the time period for the tenancy
    • terms and period for revision of rent
    • the security deposit to be paid in advance
    • reasonable causes for entry of landlord into the premises, and
    • responsibilities to maintain premises.

  Rent Authority:

  • The Act requires establishing rent authorities in every district to regulate renting of premises. Authority will protect the interests of landlords and tenants.
  • The proposed authority will also provide a speedy adjudication mechanism for the resolution of disputes.

  Security Deposit:

  • The act puts a cap on the amount of security deposit. It will be a maximum of two months of rent in case of residential premises and six months in case of non-residential premises.
  • Currently, this amount differs from one city to another. For instance, in Delhi, the deposit is usually two-three times the monthly rent, but in Mumbai and Bengaluru, it can be over six times the monthly rent.

  Increase in Rent:

  • The rent can be revised according to the terms and conditions mentioned in the agreement.
  • If there is no such agreement, the landowner will have to give a notice in writing to the tenant, three months before the due date of revised rent.

  Vacating Rental Premises:

  • The act has provided a mechanism for vacating the premises. It says that if a landlord has fulfilled all the conditions stated in the rent agreement – giving notice, etc., then the tenant has to vacate the premises.
  • If the tenant fails to vacate the premises on the expiration of the period of tenancy or termination of tenancy, then the landlord is entitled to double the monthly rent for two months and four times after that.

  Entering of Rental Premises:

  • Every landlord or the property manager may enter the rented premises in certain conditions. Like he/she needs to serve a notice, in writing or through electronic mode, to the tenant at least twenty-four hours before the time of entry.

  Sub-letting:

  • Under the Model Act, sub-letting is prohibited unless allowed through a supplementary agreement.

  Note: Model acts are not binding on states. They merely suggest provisions that either can be accepted as it is by states or with modification. States may also completely ignore these acts. Furthermore, Land is a state subject and only states can legislate to regulate the housing market.

• West Bengal Housing Industry Regulation Act (WB HIRA) is Unconstitutional: SC

  Synopsis: The court struck down the West Bengal Housing Industry Regulation Act (WB HIRA), 2017 as unconstitutional. The court also clarified that the legislations by the Parliament and the state government are on the concurrent list.

  Introduction:

  The central government enacted the Real Estate (Regulation and Development) Act to regulate the Real Estate sector in India. West Bengal government also enacted a parallel Act known as the West Bengal Housing Industry Regulation Act (WB HIRA), 2017. Recently the Supreme Court held the West Bengal legislation Unconstitutional.

  Background of both legislations:

  Contracts and the transfer of property falls under the Concurrent List of the Seventh Schedule.

  • In 1993 the West Bengal government enacted the West Bengal Housing Industry Regulation Act on the above two subjects.
  • But, to bring transparency and safety in the market for consumers of residential and commercial projects, the Central government enacted RERA in 2016. With the enactment of RERA, the 1993 Act was repealed.
  • In the same year, West Bengal notified the draft Real Estate (Regulation and Development) Rules, 2016.
  • Instead of finalizing the rules the state government went ahead and enacted West Bengal Housing Industry Regulation Act (WBHIRA) in 2017.
  • Forum for Peoples Collective Efforts filed a case against the State of West Bengal regarding the WB HIRA

  Recent Supreme Court Judgement on West Bengal Housing Industry Regulation Act:

  The Supreme Court held in Forum for Peoples Collective Efforts v. State of West Bengal case held that the WB HIRA was unconstitutional. Further, the court also mentioned the following things.

  • Both the statutes refer to the same subjects (contracts and the transfer of property) in the concurrent list.
  • Article 254 (2) allows for a conflicting State law on a concurrent list subject to prevail over a central law if it receives the assent of the President. But the WB HIRA neither reserved for the consideration of the President nor the Presidential assent was obtained.
  • The court also held that if any areas have been left out in the central legislation, the state legislatures can provide cognate(related) legislation. Such State legislation can incidentally deal with the provisions of Central legislation. But, The HIRA encroaches upon the authority of the Parliament.
  • But in the case of clause-by-clause comparison between the two laws, the court observed that 95 to 98%, the WB HIRA is a complete copy-paste of the RERA. This is an attempt to establish a parallel regime by the State government.
  • Furthermore, the court also observed that in a few critical aspects, WB HIRA is in direct conflict with RERA.
  • The court also observed that there was a “doctrine of repugnancy” between WB-HIRA and RERA. (Repugnancy –  inconsistency or contradiction between two or more parts of a legal instrument.) Such as,
    1. WB HIRA has failed to incorporate valuable institutional safeguards
    2. The WB HIRA does not have provisions intended to protect the interest of homebuyers
    3. The court observed these repugnancies of the state legislature as against the public interest.
  • The court also elaborated on the tests of repugnancy. The three tests of Repugnancy as stated by the court are
    1. Where the provision of State legislation is directly in conflict with a law enacted by Parliament. In such cases, compliance with one is impossible along with obedience to the other.
    2. The second test of repugnancy is based on the intent of Parliament to occupy the whole field(contracts and the transfer of property) covered by the legislation.
    3.  The subject of the legislation enacted by the State is identical to Parliament, then does the State law enacted prior or later to the central law.
  • Since the State law is completely repugnant to the Central law, it was constitutionally impermissible

  Conclusion:

  The court based on the above explanations struck down the West Bengal Housing Industry Regulation Act (WB HIRA), 2017, as unconstitutional. Further, the court also held that striking down the present law will not result in the revival of the 1993 WB HIRA. This is because the 1993 Act was repealed after the enactment of RERA.

  The Court also clarified that the striking down of WBHIRA will not affect the sanctions permissions granted prior to the delivery of the judgement.

  Source: The Times of India

• Unique Land Parcel Identification Number (ULPIN) Scheme

  What is the News? The Department of Land Resources informs the Standing Committee on Rural Development about the Unique Land Parcel Identification Number (ULPIN) Scheme.

  About Unique Land Parcel Identification Number(ULPIN) Scheme:

  • The Unique Land Parcel Identification Number(ULPIN) scheme was launched in 10 States in 2021. It will roll out across the country by March 2022.
  • Key Features of the Scheme:
    • Firstly, under the scheme, authorities issue a 14-digit identification number to every plot of land in the country.
    • Secondly, also called the “the Aadhaar for land”, it is a unique number to identify every surveyed parcel of land. It will prevent land fraud, especially in rural India where proper land records are not available.
    • Thirdly, the longitude and latitude of a land parcel will be the basis for its identification. It will depend on detailed surveys and geo-referenced cadastral maps.
    • Fourthly, the land records database will gradually integrate with the records of revenue courts and bank on a voluntary basis.
  • Significance: The scheme might also be the next step in the Digital India Land Records Modernisation Programme(DILRMP). It began in 2008.
    

    Benefits of the Scheme:

  • • Thus, the single source of information can authenticate the ownership and in turn, it can end the dubious ownership.
    • The scheme will also help to identify the government lands easily and protect the land from dubious land transactions.

  Source: The Hindu

   

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How to read Indian Economy for UPSC

In UPSC IAS preparation, one subject which most of the students find very difficult to start with and understand is Indian Economy. They mostly struggle with the approach, textbooks to follow and how to read Indian Economy related news in the newspaper. 

Indian Economy consists of both static as well current affairs. In this subject, textbook will build your basic understanding and help you to solve around 3-5 % of the total questions asked in the UPSC Prelims exam. Students need to refer multiple sources to better understand Indian Economy and fetch good marks in both UPSC Prelims and Mains. Every year around 10-15% questions are asked in UPSC Prelims exam from static portion, current affairs (schemes) and India Year Book. It has even increased up to 30 % in 2018 and 2019 UPSC Prelims exam. So, in any case students cannot avoid this subject as it is as important as History, Polity and Geography. 

In this article, we will discuss in detail about the study approach of Indian Economy. This article would be very helpful for those who are scared of this subject and always try to run away from this. Once you will understand the basic concepts of Indian Economy, you will start enjoying this subject and eventually you will have a good command over this subject.  

Before starting any subject in UPSC IAS preparation, it is advisable for all the students to see the past year trend of both UPSC Prelims and Mains questions. Indian Economy is part of both UPSC IAS Prelims Syllabus  and UPSC Mains Syllabus. Hence, it becomes very important for the students to study this subject with right approach and have a good understanding over the topics asked in the exam. 

In the following table, we will see the total number of questions asked in the UPSC Prelims exam in last 6 years from Indian Economy: 

 Overview of the UPSC IAS syllabus for Indian Economy: 

Study approach of Indian Economy subject for UPSC IAS: 

• Read the syllabus: Students need to go through the syllabus of Indian Economy for both UPSC Prelims and Mains. It will give them a detailed guideline about what they have to read and what they have to leave. Print the syllabus and stick that in that in your study table. 
• Start with the basic NCERT textbooks: To understand the basic concepts. One should start the preparation of Indian Economy with NCERT textbooks. One simply read the book, highlight the important point and revise them. Notes making is not much important here. Following are the NCERT textbooks which one need to read: 

• Class IX NCERT textbook ‘Economics’ 

• Class X NCERT textbook ‘Understanding Economic Development’. 
• class XI NCERT textbook ‘Indian Economic Development’. 
• Class XII NCERT textbook ‘Introductory Microeconomics’. 
• class XII NCERT textbook ‘Introductory Macroeconomics’ (Most important). 

• Take a step forward with advance book: To cover each topic thoroughly and understand everything in detail, students need to refer one advance book for Indian Polity. ‘Indian Economy’ by Ramesh Singh is simple and good book to understand the topics. Here also, one should not run behind taking notes of each topic. Highlighting the things and multiple revision would be helpful for students. 

• Current Affairs: Indian Economy is totally linked with current affairs. Topics like SLR, RR, GDP are current based. One must refer monthly current affairs magazine to cover current based issues. One thing is very important to note that, no current affairs magazine can substitute the Newspapers. To cover Indian Economy related news, “Economic Times or Business Standards” would be recommendable. 
• Refer other miscellaneous materials: After reading Economic Survey and Budget, your preparation will be complete. Economy Survey and Budget will give you basic idea about How our country is developing. What is growth, what is the expenditure and revenue? This will help you in both UPSC Prelims and Mains. One can also refer Economic and Political Weekly (EPW) magazine. This is completely optional and will only be helpful when you have completed and revised the other things. 
• Focus more on Government Schemes and some important topics of Indian Economy: UPSC every year ask lots of questions on Government Schemes related to Indian Economy. Students must cover every schemes thoroughly and they can also make short notes on them and revise them. Some important topics of Indian Economy on which students need to focus more are: 

• National income accounting, GDP, GNP, inflation, balance of payment, fiscal policy, monetary policy, RBI, PSL, NBFC. 
• Finance commission – terms of references, themes. 

• International organizations – World Bank, IMF, WTO, UNCTAD, WEF and their reports. Bodies like G-15, G-7, G-33, etc. 
• Basic economic terms, demographic dividend, inclusive growth. 

• Taking help of online sources: Students should utilize the benefits of integration of technology in education. Topics which they find difficult to understand, can easily get command over those topics with the help of You tube, online classes etc. On these platforms, they can read and revise the topics multiple times.    
• Refer Previous year UPSC Prelims and Mains questions: Analyzing the past year papers will help students to have a clear understanding of which types of questions are asked by UPSC. On these lines, students should give the second reading to the advance book and NCERTs.  
• Practice mock tests: After completing the syllabus once, students need to give mock tests. Firstly, they can solve MCQs topic wise. After that, weekly they can solve MCQs based on complete syllabus of Indian Economy. It will help them to reduce their fear and also build their logic on solving MCQS. 

• Answer writing practice: After completing the whole syllabus once, students must start answer writing practice on Previous Years Question of UPSC Mains. They should also practice daily/weekly answer writing based on their capacity.   
• Revision is the key: Revision is the key to Success. Students need to revise each and every topic multiple times. Revision will boost their preparation and help to make a blueprint of everything in the back of the mind. It will reduce the time taken in the final exam (Prelims and Mains) to solve the questions. 

Indian Economy is an interesting and concept-based subject. One cannot understand the subject if will try to simply mug up the things like in History they do. Understanding the things and solving MCQs with logic will help them a lot.